TT's Lost in Tokyo — by TokyoTom

Historian and Constitutional scholar Kevin Guzman posted a comment on his Facebook wall on the Citizens United decision that I took a disliking to.

Here is his September 6, 2014 post and my responses (to him and his other commenters):

There’s a popular meme that “Corporations aren’t people.” The aim is to repeal the Supreme Court’s decision in Citizens United that Congress cannot under the Speech and Press Clauses of the First Amendment limit political advertising so stringently as it had been under the McCain-Feingold Act. The point of the meme is that only people are entitled to constitutional protections, and so Congress can do whatever it wants to corporations. Let’s follow the implications of the claim that “Corporations aren’t people.”

September 7 at 1:24am

Tokyo Tom Kevin, this is an interesting an important topic, which hasn’t been set up very well. 

First, I think you missed the gist of the Dartmouth case, which essentially said that NH couldn’t alter Dartmouth’s charter (which had been granted by the English Crown), because the corporate charter was a form of private contract that was protected from “impairment” by states under the Constitution. The case was brought by the Trustees of Dartmouth, and didn’t particularly “recognize that corporations do indeed have rights of individuals.” States responded by reserving greater powers when they create corporations.

http://en.wikipedia.org/wiki/Dartmouth_College_v._Woodward
http://www.oyez.org/cases/1792-1850/1818/1818_0
http://www.americanbar.org/…/students_in…/dartmouth.html

September 7 at 1:32am

Tokyo Tom Hopefully, we’re all clear on the fact that corporations are created by governments, were traditionally considered as forms of contracts and property rights, and have special powers, rights and characteristics provided by state legislatures that render them quite different from real, live human beings?

Unfortunately, many on the Left and Right are confused about the origin, history and nature of corporations. As I said to some progressives:

“Sadly, it seems that most if not all of the progressives here want to deny what cannot be denied: that corporations exist only because they are made by acts of legislative power of Governments. They also want to deny that the special characteristics that Govt give to “corporations” are the very attributes that lead to harms to others/social ills that continually fuel more regulation of corporations by governments.

“It’s hard to discern why they have these views–perhaps, because they are so ingrained in seeing Govt as their sole savior in fighting against corporate Frankensteins–but they are clearly incorrect, as a legal and historical matter.
Be that as it may, as a matter of understanding and attacking the roots of our problems, it behooves progressives to investigate and understand how government and corporations shape the incentives and influence the behavior of the people who find themselves within them.

“Not only do corporations exist only because of Govt, but it is clear that the reasons why corporations play such negative roles in society and have corrupted Govt are their state-granted characteristics that would NOT exist in a “free market”. Sole proprietorships, partnerships, associations and co-operatives do NOT have#LimitedLiability, unlimited lives, unlimited purposes, and the businesses do not have legal entity status different from the owners.

http://tokyotom.freecapitalists.org/…/corporations…

 

September 7 at 1:47am

Tokyo Tom Corporations have continued to find the Federal government and Supreme Court their friend in escaping control by the states that created them; see this pre-Citizens United post about the perversion of the anti-discrimination (due process/equal protection) provisions of the 14th Amendment (that used “persons” to protect freed slaves and unnaturalized Chinese) to require various states to treat corporations made in other states the same as their own corporations:

http://tokyotom.freecapitalists.org/…/corpspeak…/

 

September 7 at 1:51am

Tokyo Tom Karl Pope’s thoughts after Citizens United are largely spot on, and explain the drive that Sen. Colburn is now sponsoring to convene a Constitutional Convention to consider amendments:

http://tokyotom.freecapitalists.org/…/carl-pope-sierra…/

 

• Kevin Gutzman It’s impossible to remove money from politics. If you deny individuals the right to buy political ads, you’ve effectively elevated owners of media corporations to the status of Elite Class, as only they will be able to say what they want. On the other hand, the Tenth Amendment reserves power to regulate elections to the states; if they want to ban donations from out-of-state interests or individuals, they should be allowed to do so. Score another negative result for the Incorporation Doctrine.

  September 7 at 2:55am ·
• 

  Kevin Gutzman I think that all federal campaign regulation is unconstitutional, as nothing in the Constitution empowers Congress to regulate anything other than the “time, place, and manner” of elections. At the federal level, there’s no reason not to have a sunshine law requiring disclosure of all donations.

  September 7 at 2:57am · Edited ·
• 

  Tokyo Tom Good point, Savana — states can and should be able to condition any corporate license on things that the corporation cannot do in its own name, such as lobbying. 

  Such a conditioning of the grant of corporate charter would be Consitutional, and would NOT deprive any individual of his own rights to lobby (or to combine with other employees to do so).If we want to get crony capitalism and the runaway regulatory state under control, we should simply stop granting #LtdLiability to corporate shareholders, and restore shareholder responsibility to monitor risk management by executives and managers.

  http://tokyotom.freecapitalists.org/…/immodest…/

  Tokyo Tom Kevin, I didn’t realize that “deny[ing] individuals the right to buy political ads” was the premise here, but denying the “right” of state-made entities to buy political ads, make contributions etc.

  September 7 at 3:03am

  • Tokyo Tom From my own Constitutional analysis, corporations, as artificial things, don’t “speak” at all (just as a printing press doesn’t speak either); people speak. Unfortunately, corporations (including media corporations) HAVE become ways for people to mask WHO is speaking. I think it perfectly acceptable under state corporation law and under the 1st Ad to constrain certain types of corporate “speech”.

    September 10 at 7:00pm · Edited
  • 

    Kevin Gutzman Big money wins? Big money often loses. Google “Michael Huffington” or “Clayton Williams” and see what you find. Let people know who is doing the contributing.

    Note: I agree with Savana that foreign contributions should be illegal. In theory, they already are, although Bill Clinton took advantage of them, (in)famously.

    September 7 at 3:21am
  • 

    Kevin Gutzman The idea that I should be forced to contribute to Hillary2016! thrills me about as much as being forced to help fund the Westboro Baptist Church.

    Tokyo Tom SCOTUS has the First Amendment wrong －this was intended to bind tie Feds, at a time when corporations were profoundly despised and considered property of their shareholders, with rights only grudgingly granted by states.

    Property doesn’t “speak,” even as every single shareholder and employee retains full personal speech rights.

    September 8 at 1:33am · Edited

    Kevin Gutzman “Groups of people are not people.” — ISIS

    September 8 at 1:36am ·

    Tokyo Tom Mark, without corporations, are people UNABLE to associate to conduct business together?

    Corporations are creations of governments. People are not. Nor are voluntary associations of people, as businesses/partnerships, co-ops, unions or churches.

    September 9 at 1:27pm · Edited ·

    Tokyo Tom ISIS? “of course a few less than enlightened people are not seeing the distinction between an inactive band of musicians and a band of terrorists involved in current world affairs.”

    • http://m.huffpost.com/ca/entry/5722758

  September 8 at 11:12am

  Kevin Gutzman Right, they’re sheep.
  Special sheep with all the constitutional rights of individuals that they are capable of exercising–as I enumerated in my original post. The only one they don’t have is, “coincidentally,” the one the Democratic Party doesn’t want them to have.
  From Dred Scott to present, that’s the way Democratic Party “constitutionalism” works.

  September 8 at 11:35pm

  Tokyo Tom “Of course corporations have the same rights as people. A corporation is not a tangible thing. It is an abstract term describing a group of organized individuals/people.”Balderdash on a stick, that we are reminded of in the cases of BP and Fukushima. Show me any individuals without a government-made liability shield who could do the damage that corporations (and governments do). Where are the mass torts? The Superfund sites?

  Individuals, business partnerships and coops can all be kept in check (to a significantly greater degree) by others in the communities in which they live.

  http://tokyotom.freecapitalists.org/…/quot-biggest…/

  Kevin Gutzman Tokyo Tom, I got off at “Senator Joe Barton.”

  September 8 at 11:15pm

  Tokyo Tom State-made corporations are the health of the massive regulatory state, which is likewise the health of the crony corporations. It’s a rachet, and racket.

  Are you a Bootlegger, or a Baptist?

  September 8 at 11:38pm

  Tokyo Tom Let’s look more at BP as a “person”:|

  • 
    Jim Hightower:
    “And now, its rap sheet grows almost daily. In fact, the Center for Public Integrity has revealed that the oil giant’s current catastrophic mess should come as no surprise, for it has a long and sorry record of causing calamities. In the last three years, the center says, an astonishing “97 percent of all flagrant violations found in the refining industry by government safety inspectors” came at BP facilities. These included 760 violations rated as “egregious” and “willful.” In contrast, the oil company with the second-worst record had only eight such citations.While its CEO, Tony Hayward, claims that its gulf blowout was simply a tragic accident that no one could’ve foreseen, internal corporate documents reveal that BP itself had been struggling for nearly a year with its inability to get this well under control. Also, it had been willfully violating its own safety policies and had flat out lied to regulators about its ability to cope with what’s delicately called a major “petroleum release” in the Gulf of Mexico.

    “What the hell did we do to deserve this?” Hayward asked shortly after his faulty well exploded. Excuse us, Tony, but you’re not the victim here — and this disaster is not the work of fate. Rather, the deadly gusher in the gulf is a direct product of BP’s reckless pursuit of profits. You waltzed around environmental protections, deliberately avoided installing relatively cheap safety equipment, and cavalierly lied about the likelihood of disaster and your ability to cope with it.

    “It wasn’t our accident,” the CEO later declared, as oil was spreading. Wow, Tony, in one four-word sentence, you told two lies. First, BP owns the well, and it is your mess. Second, the mess was not an “accident,” but the inevitable result of hubris and greed flowing straight from BP’s executive suite.
    “The Gulf of Mexico is a very big ocean,” Hayward told the media, trying to sidestep the fact that BP’s mess was fast becoming America’s worst oil calamity. Indeed, Tony coolly explained that the amount of oil spewing from the well “is tiny in relation to the total water volume.” This flabbergasting comment came only two weeks before it was revealed that the amount of gushing oil was 19 times more than BP had been claiming.
    Eleven oil workers are dead, thousands of Gulf Coast people have had their livelihoods devastated and unfathomable damage is being done to the gulf ecology. Imagine how the authorities would be treating the offender if BP were a person. It would’ve been put behind bars long ago — if not on death row.
    [link above, past the Joe Barton part]

    And here’s a couple of fun video clips riffing on the nature of the unaccountability of corporate/BP execs (not to mention the absentee shareholders, “protected by limited liability” who are themselves “victims”):

    http://tokyotom.freecapitalists.org/…/satire-oil-spill…/
    http://tokyotom.freecapitalists.org/…/time-light-humor…/

    September 9 at 1:35pm

    Tokyo Tom Corporations are “Special sheep with all the constitutional rights of individuals that they are capable of exercising,” Kevin?
    Hah. Try limited liability for one.http://archive.freecapitalists.org/…/speech-and…

    September 9 at 1:41pm

    Tokyo Tom Corporations are the Health of the State. Is this why you and other good “conservatives” cheer them on, Kevin?
    http://tokyotom.freecapitalists.org/?s=health+of+state

    September 9 at 1:42pm

    Tokyo Tom Timothy, can I recommend you look at well-known Republican shareholder activist Robert Monks, and “drone corporations”?
    The most abusive crony corporations tend to be a low-performing bunch of listed firms, with no significant shareholder blocs:http://tokyotom.freecapitalists.org/?s=drone+corporation

    September 9 at 1:46pm

    Tokyo Tom Stacey, yes, my problem is with “corporatism” and how government-made corporations are the hand-maiden of both the snowballing state, crony capitalism, and confused people across the spectrum bewailing or defending “capitalism!” and “free markets”. is the natural result of governments creating Btw,
    1. BP is half Amoco, and ofc operates in the US through subsidiaries. Did you miss this in my quote? In the period just before 2010, “an astonishing “97 percent of all flagrant violations found in the refining industry by government safety inspectors” came at BP facilities. These included 760 violations rated as “egregious” and “willful.” In contrast, the oil company with the second-worst record had only eight such citations.”

    2. They “are sorry individuals, should they not have rights?”

    Which “they” are you talking about, and for what purposes? If you are talking about “speech”,” then in the case of BP, who is it who is speaking, and for whom? Who speaks for workers killed? Shareholders? Management? Who are the principals, and who are the agents?

    Every individual in BP/connected to BP retains personal rights to speak, and can form voluntary groups to do so if they wish–the doctrine Kevin is pushing is a socialist/collectivist one that DENIES individual accountability and and MASKS self-interest, thus forcing those who interact with or are affected by BP into a position where, since individual accountability is near-impossible, to seek government assistance in getting at least some collective responsibility, but little private redress — very little of whatever the government ends up collecting from BP will actually trickle down, and individuals will remain beholden to the government and to BP for risk management going forward, rather than having direct rights.

    See my above clips on BP cats and the Clarke and Dawe spoof for light takes on unaccountability and who speaks for whom.

    September 9 at 2:27pm

    Kevin Gutzman Tom, you have got to be kidding. The reason Obama wants to muzzle corporations is so that he can take more of our money and give it to his constituents, invite more Guatemalans to come here and become his constituents, etc. He sees them as an obstacle, and so he wants to undo American legal precedent dating all the way back to the days when a ratifier of the Constitution was chief justice of the Supreme Court. And you say that I am the one who is pushing statism. Since the Revolution of 1937, there has never been a time when the Democratic Party stood for originalism in constitutional interpretation; they always argue for new, unknown doctrines that advance redistribution, secularization, etc. This new idea that corporations don’t have the rights of individuals is more of the same.

    September 9 at 2:36pm · Edited

    Tokyo Tom The purpose of the First Amendment was to protect we the people from acts of the Federal government, NOT to protect state-created corporations from the governments and people who make them.The Federal government, this time through the Supreme Court, continues to play the role of helping elites, through state-created corporations, to destroy free markets and local representative government.

    I’m sorry to see so many deluded “conservative” cheerleaders for this.

    September 9 at 3:28pm

    Tokyo Tom The answer to the following question is “NO”: [Does it make any sense to treat corporations as “persons”, given the differences in incentive structures?]
    http://tokyotom.freecapitalists.org/…/sense-treat…/

    September 9 at 3:29pm

    • Kevin Gutzman Give me a break. The new argument that government can regulate corporate purchases of political advertizing is entirely about protecting incumbents from criticism. McCain said so, explicitly.

      September 9 at 3:29pm

      Kevin Gutzman If you think advertizing against Obama is “destroying free markets,” we speak different languages.
    • September 9 at 3:30pm
    • Tokyo Tom Whip conflation now, Kevin. Try addressing my actual arguments.

      September 9 at 3:32pm
    • Kevin Gutzman Show me where the Constitution gives Congress power to regulate purchases of political ads by corporations. You can’t, because it doesn’t. The argument that it does is based on the “reading” of the Commerce Clause invented by Klansman Black and his fellow FDR political hacks in the 1930s. It’s completely contrary to the 10th Amendment.

      September 9 at 3:32pm
    • Kevin Gutzman Case closed.

      September 9 at 3:33pm
    • Tokyo Tom I’m not a fan of the Feds regulating anything, Kevin. But the states that make corporations sure as hell have a right to limit what they can do in exchange for very special privileges granted.

      September 9 at 3:34pm
    • Tokyo Tom But I already addressed the First Ad several times upthread. Corporations are THINGS, not people. Things don’t “speak”, at least for Constitutional purposes.

      September 9 at 3:36pm ·
    • Tokyo Tom My argument doesn’t refer to the absurd Commerce clause jurisprudence at all.

      September 9 at 3:37pm
    • Tokyo Tom “The new argument that government can regulate corporate purchases of political advertizing is entirely about protecting incumbents from criticism.”

      I am sure that this IS the case now, but the argument against allowing corporations to speak (why does NYT get special treatment?) is 100+ years old — pretty sure I copied in a Teddy Roosevelt quote upthread.But you’re a HISTORIAN; you know this already.

      September 9 at 3:51pm

      • Stacey York Morris States that “make” corporations? Huh?

        September 9 at 3:40pm
      • Tokyo Tom Stacey, yes. Surely you’re aware of “corporation laws”, and checked out the Dartmouth case (rare exception of a one-off corporation made by King George). Corporations are creatures of governments — there are NO “free market” corporations.

        September 9 at 3:43pm
      • Tokyo Tom The American Taliban is alive and well in “conservatives” who reflexively defend as “free markets” the corporatism that has always fuelled the “Progressive” movement.

        We have our own Sunni and Shia, battling over who gets to control the State:http://tokyotom.freecapitalists.org/…/state…/
        http://tokyotom.freecapitalists.org/…/dysfunction…/

        September 9 at 3:50pm 

        Stacey York Morris States don’t create corporations. They tax them but thats not creation. I’m a teeny corporation and trust me, the state did nothing. States don’t have the right to silence them one bit. They do court them but that’s because they bring jobs for their state and lots of tax money. States like Maryland and California blackmail and harass them to death. Charge them for infrastructure and tax them at the federal rate which is highest in world, so they may find a state that is more friendly, but that’s not “creating” them. King George wasn’t a capitalist.

        September 9 at 3:53pm

        Tokyo Tom Stacey, unfortunately you’re sounding more like a liberal all the time, with the wrinkle that they deny that governments make corporations because it’s their view that the evil aspects of corporations are due to “capitalism” and “greed”, while with you it’s a desire to defend “free markets” from “greedy” and “grasping” GOVERNMENTS (did you NOT read the Sheldon Richman piece that you posted above)?Undeniably, corporations are made by governments; the fact that governments have, via a race to the bottom have “democratized” the process doesn’t change its nature. Rather, it simply masks the deep roots of corporatism and the reasons for the regulatory state.

        I explained this upthread already, with excerpts from this blog post:

        http://tokyotom.freecapitalists.org/…/corporations…/

        September 9 at 4:51pm

        • Brett Sylvester ^ Funny how advocates of free markets can perfectly predict the property norms that would arise in the absence of a sate…

          September 9 at 5:29pm
        • Tokyo Tom Brett, if you’re talking to me, I fail to see how you’re addressing anything I’ve said.

          Propertyrights continuously evolve in all societies, as technology, demand, mores and institutions change.So?

          September 9 at 9:45pm · Edited
        • Tokyo Tom Jeff, focus. We’re only talking about the corporate form – which is undeniably a creature of governments and not free markets. Our Founding Fathers all knew this, and detested the Crown’s corporations/monopolies － does the original Tea Party not ring a bell?

          But you raise an important issue － the deep entanglement of government with business that flows from government creation of corporate forms is what underlies people bashing “business” and “capitalism” when they mean corporatism, as well as why they think governments have rights to micromanage business.

          September 9 at 9:58pm

          • Kevin Gutzman I reference specific provisions of the Constitution, and Tom invokes proto-fascist Theodore Roosevelt. Non sequitur.

            September 10 at 2:05am
          • Kevin Gutzman I agree that states have a right to regulate corporate behavior. I oppose the Incorporation Doctrine.

            September 10 at 2:06am

            Kevin Gutzman Since a corporation’s holdings are the pooled property of its shareholders, yes, it has fiduciary responsibility for the property to which they have a natural right. That’s why in Dartmouth College v. Woodward (1819), Chief Justice Marshall spoke of the shareholders’ rights in considering the College’s claims.

            September 10 at 11:33am

            • Kevin Gutzman Some corporate crimes lead to incarceration of officers, some don’t.
              The reasons there’s a move to deny that corporations have rights are two: 1) that some politicians don’t like being criticized, and so want to ban corporations from contributing to campaigns against them (as McCain said in explaining the McCain-Feingold Law); and 2) that there’s a general tendency for the Federal Government to deny all rights as they come to mind, and Citizens United brought this particular set to mind.

              September 10 at 2:12pm ·
            • Tokyo Tom “I reference specific provisions of the Constitution, and Tom invokes proto-fascist Theodore Roosevelt. Non sequitur.”Hah. The historian can’t recall or research the history of his own thread.

              Kevin, you said “The new argument that government can regulate corporate purchases of political advertizing [sic] is entirely about protecting incumbents from criticism”; I didn’t disagree as to Dem motives now, but simply said “the argument against allowing corporations to speak (why does NYT get special treatment?) is 100+ years old” and referred to your proto-fascist Teddy Roosevelt.

              September 10 at 7:29pm ·
            • Tokyo Tom “I agree that states have a right to regulate corporate behavior. I oppose the Incorporation Doctrine.”Glad we agree on the first point; on the second, with the exception of Citizens United (on the First Amendment), much of the history of extending Constitutional rights to corporate “persons” has been of “Incorporation” — viz., making the Bill of Rights applicable to state and local governments through the due process clause of the Fourteenth Amendment. Corporations now have fourth amendment safeguards against unreasonable regulatory searches; fifth amendment double jeopardy and liberty rights; and sixth and seventh amendment entitlements to trial by jury.

              You oppose these extensions to state-made corporations, presumably, Kevin?

              Then you also OPPOSE the Supreme Court’s SUMMARY extension of its new First Amendment doctrine to the STATES via the 14th Ad “Incorporation” doctrine, in the 2012 Montana case, American Tradition Partnership v. Bullock?

              If you are, then I commend you — other than your failure to point it out to people on this thread.

              http://thehill.com/…/234515-supreme-court-reaffirms…

              September 10 at 9:44pm · Edited ·
            • Tokyo Tom Brett: “You’re claiming that society would necessarily not be ordered in a certain wayin the absence of a state, when there’s no reason that it couldn’t be.”No, I’m not; I’m just saying that corporations are made by governments and have rights granted by governments, and observing that these are rights that you and I don’t have — owners of unincorporated businesses don’t have limited liability to persons who they may injure, we die, etc.

              As Marshall said in Dartmouth: “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence.”

              September 10 at 8:00pm · Edited
            • Tokyo Tom “in Dartmouth College v. Woodward (1819), Chief Justice Marshall spoke of the shareholders’ rights in considering the College’s claims.”

              
              You speak with great authority of matters that Marshall doesn’t address in his opinion. His chief point is to determine that the grant of Dartmouth’s charter was a CONTRACT among the Crown, the founders (donors) and Trustees — not a trust with fiduciary obligations:“This is plainly a contract to which the donors, the Trustees, and the Crown (to whose rights and obligations New Hampshire succeeds) were the original parties. It is a contract made on a valuable consideration. It is a contract for the security and disposition of property. It is a contract on the faith of which real and personal estate has been conveyed to the corporation. It is, then, a contract within the letter of the Constitution, and within its spirit also ….”
              http://www.law.cornell.edu/supremecourt/text/17/518…

              September 10 at 8:09pm
            • Tokyo Tom “The 14th Amendment applies to Americans.”

              Due Process and Equal Protection apply to “persons” (there were plenty of non-naturalized Chinese, and the Amendment also had to clarify state and federal citizenship), which is how railroad and other corporations have been able to escape the states and capture the feds.

              September 10 at 8:13pm
            • Tokyo Tom “The reasons there’s a move to deny that corporations have rights are two:”And then there are those who want to breathe real meaning back into “federalism” and states rights, and to end the conflation of corporation=business and crony capitalism=capitalism. 

              The key to regaining control over our lives from Big Brother and Big Corporations isn’t the Federal government, but by reining in corporations/revising corporation laws state-by-state.

              September 10 at 8:19pm
            • Tokyo Tom HEY THREAD FOLLOWERS —

              
              Kevin indicated above that, because he opposes the 14th Amendment “Incorporation Doctrine,” he “agree[s] that states have a right to regulate corporate behavior.”…

Cross-posted from the “we build our society” group on Facebook:

Sadly, it seems that most if not all of the progressives here want to deny what cannot be denied: that corporations exist only because they are made by acts of legislative power of Governments. They also want to deny that the special characteristics that Govt give to “corporations” are the very attributes that lead to harms to others/social ills that continually fuel more regulation of corporations by governments.

It’s hard to discern why they have these views–perhaps, because they are so ingrained in seeing Govt as their sole savior in fighting against corporate Frankensteins–but they are clearly incorrect, as a legal and historical matter.

Be that as it may, as a matter of understanding and attacking the roots of our problems, it behooves progressives to investigate and understand how government and corporations shape the incentives and influence the behavior of the people who find themselves within them.

Not only do corporations exist only because of Govt, but it is clear that the reasons why corporations play such negative roles in society and have corrupted Govt are their state-granted characteristics that would NOT exist in a “free market”. Sole proprietorships, partnerships, associations and co-operatives do NOT have #LimitedLiability, unlimited lives, unlimited purposes, and the businesses do not have legal entity status different from the owners.

Fixing our society requires fixing corporations; here are some useful reads:
http://reclaimdemocracy.org/corporate-accountability…/
http://www.thirdworldtraveler.com/…/Hx_Corporations_US…
https://www.amacad.org/…/13_spring_daedalus_GomorySylla…
http://tokyotom.freecapitalists.org/?s=limited+liability

The fact that now corporations are easily made does not alter their essential nature as creations by Governments. But even if you want to play that game, the fact remains that to fix our problems we need to reform the building blocks of heavily Govt-influenced “capitalism”. If we don’t we are simply disempowering ourselves, while growing a fascist, job-destroying corporate police state.

http://tokyotom.freecapitalists.org/2011/12/15/occupy-shallow-obtuse-39-bleeding-heart-39-libertarian-missed-block-facilely-blames-left-corporatism-dear-left-corporatism-fault/

Cross-posted from “we build our society” Facebook group: https://www.facebook.com/groups/webuildoursociety/426292260807996/?notif_t=group_comment#!/groups/webuildoursociety/permalink/426598337444055/

Terry, 2007-09 flow from various government interventions, not limited to those I just outlined, that served the purpose of blowing a bubble and freeing those playing with money from personal responsibility. This meant that smart men focussed on how they could game the system for their own profit. It happened continually and is still underway, though 1994 in Boca may be a good example.

Doug, [Jekyll Island 1913] was just the creation of the Fed (and just part of my item(3) above); the roots go much deeper to other state interventions I noted. The pre-Fed booms/panics also flowed from the state-level creation of banks as corporations and monopolies, and interventions to save banks that essentially broke promises to depositors by creating un-backed paper money. See Rothbard’s History of Money and Banking in the United States, http://mises.org/books/historyofmoney.pdf

Robert Higgs, Senior Fellow in Political Economy and Editor at Large, The Independent Review, has a piece up at The Independent Institute (last Tuesday, April 9), “Libertarian Wishful Thinking,” that is worth a “gander”.

I’d like to focus on the paragraphs excerpted below, and then give Bob and other lovers of freedom a little “goose”.

Says Mr. Higgs: 

As a rule, libertarians incline toward wishful thinking. They constantly pluck little events, statements, and movies from the flow of life and cry out, “Eureka! Libertarianism is on the march!” With some of my friends, this tendency is so marked that I have become amused by its recurrent expression—well, there he goes again!

Some of this tendency springs, I believe, from their immersion in abstract thought and writing. …

One who maintains, as I do, that the existing system may crumble little by little, having heedlessly sowed thousands of poisonous seeds of its own destruction, but almost certainly will never just roll over and admit defeat, may seem to be a defeatist. But nothing is gained by entertaining an unrealistic view of what liberty lovers are up against. Even if one believes, as I do, that the existing system is not viable in the very long run, it may last in episodically patched-up forms for a long, long time. There are no magic bullets, such as abolishing the Fed. The state can use other means in the highly unlikely event that it should no longer have the Fed in its arsenal. The same can be said about most of the system’s other key elements. …

In truth, the time for liberty lovers to make a stand that had a fighting chance of success was a century ago. But that chance was squandered, if indeed it ever packed much punch. … Wishful thinking about the impending triumph of liberty may be uplifting for libertarians, but it avails neither them nor the world anything of real importance.

But it seems to me that while there is a great deal of truth here, simply acknowledging that vested interests are large and block change is not particularly productive and suffers from a failure to see the weak points in Goliath/Leviathan. Are there really no “magic bullets”? Are there no productive and achievable ways to “patch up” the system?? No leverage to apply to overthrow “this fascistic Rome”?

So I left the following comment; your further thoughts, here or at Bob’s post, are welcome:

While I think Bob is right that libertarians should lose their wishful thinking, I also feel that the real problem is that libertarians aren’t really putting on their thinking caps and thinking creatively.

“There are no magic bullets,” Bob says. But there ARE pressure points on which to focus.

Like attacking the corporate risk socialization that has fuelled upset citizens to act as Baptists in the charade so well played by the Bootleggers in building the Regulatory State.

Like using the states as experiments to create many agents of Creative Destruction against the Federal Govt and the crony capitalists.

Some thoughts here:

http://blogs.law.harvard.edu/tokyotom/2012/05/07/note-to-larry-lessig-on-his-anti-corruption-pledge-limited-liability-corporations-are-the-taproot-of-both-growing-government-and-anonymous-rent-seeking/

http://blogs.law.harvard.edu/tokyotom/2013/03/22/as-bob-monks-says-corporate-governance-has-failed-and-its-time-to-move-on-so-whats-next-unleash-the-hounds/

http://mises.org/community/blogs/tokyotom/search.aspx?q=limited+liability

I don’t think we need to throw our hands up at all, or to lose our optimism. Rather, we need to start finding ways to rein in risk socialization and the “Other People’s Money” game by requiring economic actors to have MORE personal “Skin In the Game.”

Hopefully,

Tom

TokyoTom | Apr 15, 2013 | Reply

In the wake of the recent deaths and illnesses in Germany from a dangerous strain of E. coli, thinker and former banker Matt Ridley – who’ve I discussed before in the context of nuclear crony capitalism –  has an article in the June 11 Wall Street Journal on “When Precaution Trumps Public Safely“.

As I thought Matt’s post to be curiously uncurious as to the factors driving the ‘precautionary principle’, I ventured to address the deficiency with a thought or two of my own, and left the following comment at Matt’s blog:

Matt, ever wondered where the ‘precautionary principle’ comes from?

Ever heard of ‘once burned, twice shy’?

It seems clear to me that the insistence of many on the precautionary principle has it roots in massive externalities (pollution) by government activities and by corporations, those great pools of anonymous and irresponsible capital who shareholders, freed by the government grant of limited liability from downside risks, decided to turn a blind eye to risk management.

If we want more risk-taking, we should demand more responsibility by investors. Saying that it’s the common man who has to have the greatest skin in the game is a recipe for continued stonewalling.

Tom

I copy below some more of my dialogue with Stephan Kinsella and others, regarding Jeffrey Tucker‘s unhappiness that not all libertarians are cheerleaders for our current model of “capitallism” (see my eariler posts on “scrupulosity“).

Stephan does a great job at wrestling with strawmen, attributing to me positions that I have expressly argued against, and questioning my forthrightness and my dislike for the state:

{Folks apologies if you are seeing disordered paragraphs; the blogging software seems to do that frequently when one copies in various blocks of text. I have added a few numbers to make chronological order clear.)

1.  Stephan Kinsella June 5, 2011 at 8:33 am

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,

See Hessen et al.–it is true of limited liability partnerships, where you have limited partners who are passive, and general partners who are active.

But even for a general partner–why is he automatically liable for what torts employees commit? this hoary, feudal notion of respondeat superior–you are responsible for your “servants’” actions–is a bit insulting and elitist.

” 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.”

If they would not be liable in the first place then it’s not a grant, any more than you, as a Walmart customer, are “granted” limited liability just b/c the law does not currently make you jointly reponsible for torts committed by Walmart employees. I suppose you could argue this “grant” of limited liability to you as customer makes you as customer turn a blind eye to its risky activities. As I said in my post, this broad view of causal responsibiltiy would make everyone in society liable for everyone else all the time, without exception, which is why I analogized it to socialized medicine/Obamacare.

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;

You keep saying it’s a grant but this is question begging, as this assertion assumes that absent this legal rule they would be liable vicariously under some libertarian principles of causation. I deny that they would. So if you say it’s grant you are arguing dishonestly by assuming your premise.

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

WElt he state should be eliminated of course. There should be no laws whatsoever regarding corporations. I agree with this. The limitation of liability law should be abolished. I of course agree, which shoudl be apparent from reading what I have written since unlike many left-libertarians who are vague and maunder and equivocat and are disingenuous I try like Rothbard to be clear and upfront, and am very openly anti-state. I simply disagree with people like you who explicitly or implicitly propose that in a free society it would be appropriate to automatically hold the equivalent of passive shareholders (whatever you call them) vicariously responsible for others’ torts. If you think removing limited liability would make a difference, this is your implicit view. This is what I disagree with; your distractions seem to be an attempt to cloud the water to make it hard to see that this issue is at the heart of our disagreement.

– just as other grants by the government of liability limits (nuclear power, offshore oil drilling, and pollution permitting generally) should be eliminated.

Yes, I agree, but that is a bad analogy b/c those ARE real limits that do have an effect, unlike the shareholder case which does nothing IMO but ratify the situation that would obtain anyway.

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?

It’s not contracts that do it. It’s simply the fact that tort victims can pursue the tortfeasor, and the shareholder is not the tortfeasor; and there is no ground for making the shareholder liable vicariously for the employee’s torts.

And yes, see: Rothbard on Corporations and Limited Liability for Tort; Legitimizing the Corporation and Other Posts; Defending Corporations: Block and Huebert; Pilon on Corporations: A Discussion with Kevin Carson; Corporations and Limited Liability for Torts; In Defense of the Corporation

For example, see pilon http://www.stephankinsella.com/wp-content/uploads/texts/ga-l-rev-1979_6.pdf pp. 1310-. for Hessen, see this excerpt,http://www.lewrockwell.com/blog/wp-content/uploads/2004/04/Hessen+corporation+tort+liability+excerpts.pdf , pp. 18-20
and http://www.stephankinsella.com/2010/02/rothbard-on-corporations-and-limited-liability-for-tort/ — this last post also quotes Rothbard: “Similarly, if a corporate manager committed a wrong and damaged the person or property of others, there is no reason but “deep pockets” to make the stockholders pay, provided that the latter were innocent and did not order the manager to engage in these tortious actions.”

So, Rothbard, Hessen, Pilon–all hold that passive shareholders are not automatically liable vicariously for torts committed by employees, any more than limited partners would be.

Just as you, surely, have no objection to private agreements between parties to protect the information created by one of them (private “intellectual property”)

I would not call it that. “Intellectual property” is a propaganda term invented recently to justify state grants of monopoly privilege (patent and copyright)http://blog.mises.org/14914/intellectual-properganda/

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?

You are confusing the case for contractual limited liability of shareholders for contractual debts, with the case for shareholders not being liable vicariously for others’ torts. The latter is not based on contract.

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 what? this is not a justification for a law. It’s just some “policy” musings.

So we are left with massive corporations which are massively entangled with government

That’s b/c there is a state (which you favor, not me; I’m the anarchist), not b/c of the way people would create firms on the free market

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)

Emotivism. You are not making an argument. It is not unlibertarian to have a view as to who is victimized by a given state policy. In fact the central state whose legitimacy you yourself support claims the overlord/landlord status in the offshore continental shelf; BP held a lease. It was your central state that is the landlord whose tenant had the oil spill. By your principles of vicarious responsibilty where you want to willy nilly say some old lady holding a single share of BP stock should be personally liable for this tort, of course the landlord should be too, right? I.e., your state is responsible, so why are you blaming me for favoring private investors in a free society, when you support the very state’s existence, the state that is responsible for the BP spill in the first place? And of course the nuclear industry is heavily distorted and corrupted by the state; Chernobyl was teh state’s fault, and the entire meltdown-prone western nuclear industry was corrupted by your beloved state for military reasons — instead of safe Thorium we needed the current system to produce nuclear weaponshttp://www.libertarianstandard.com/2011/04/01/the-states-corruption-of-nuclear-power/

So blaming this on private investors is rich. It’s the state’s fault, as usual. You think that getting rid of one of the few state laws that happens to mimic the likely result on a free market (limited liability for passive shareholders) is what you should focus on?!

As Mises long ago noted, moral hazard matters.

This is how statists and law professors reason. It is not how libertarians reason. We believe in individual rights–property rights–and have principles. we don’t run around “weighing” various “policy reasons” to tweak and fine tune statist positive law.

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?

Nonsense. SEe the Hessen excerpt above, p. 17, regarding how partnerships or firms can easily make the firm effectively immortal by use of continuity agreements. This is not hard.

Just as for limited liability,

More question begging, as I have explained

the grants of legal entity status,

this is not a gift but an unnecessary status that the state uses to justify regulation and double taxation of shareholders. In a free market firms would not have legal personality nor do they need to. Hessen has already explained this almost 30 years ago.

unlimited life,

See Hessen, last mention above. This can be done contractualy.

unlimited purposes and the ability to own subsidiaries are all substantial AND consequence-laden gifts from the state.

The purpose is whatever the shareholders agree to. It has nothing to do with the state just as marriage should not. Ownign a subsidiary is not a privilege but just another contractual private scheme. Nothing you described is a gift fromt he state. All these features are doable privately and contractualy, except for entity theory which is not a gift but a penalty.

Show me a partnership that has any of these, without a grant from the state.

This is like asking me to show you a 100% reserve bank. They are not used now b/c the state’s fractional reserve/guaranteed system outcompetes it. If I want a perpetual firm I just use a corporation b/c the state provides this mechanism. In a free market people would have to do it privately contractually, on their own; I have no idea if they would be called limited partnerships, LLP, LLC, or what. Who cares? IT’s just a detail. Get the state out of the way, and we’ll see.

Waht i object to is your clamoring for shareholders to be liable, when you have no theory whatsoever undergirding this.

The state creation of corporations has do much to muddle who, exactly, is responsible for injuries to third parties caused by “the corporation”.

So what, really? In most cases the corporation pays the victim, and has assets to do so.

Getting rid of limited liability would do much to provide moral clarity,

Again, this is question begging, b/c you are assuming there would and should be liability for shareholders absent the limitation of liability law.

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.

I know, but this still does not justify your claim that shareholders should be liable vicariously for the torts of others. What is your theory of causal responsibility? I have tried to sketch one out — http://mises.org/journals/qjae/pdf/qjae7_4_7.pdf — and see no way to hold passive shareholders liable; confirming the reasoning on the same lines of Hessen, Pilon, and Rothbard.

TokyoTom June 5, 2011 at 10:00 am

3. TokyoTom June 5, 2011 at 7:14 pm

It’s 42 minutes long, but well worth a listen. (A short version is here.]

It ‘s nice to see Stockman become an Austrian economics thinker, but I must say that I think he really pulled his punches by failing to cooment on the fact that most of our failing government/Fed policies have all been SUCCESSES – successful in benefitting particular favored interests and successful in making government more powerful

I copy below the clip the explanation uploaded at YouTube by Reason.tv.

[View:http://www.youtube.com/watch?v=Lq9NwyQSzhk:550:0]

Uploaded by ReasonTV on Jan 3, 2011 [emphasis added]

Last night I was Sleepless in Tokyo because Matt Ridley and one of his commenters rewarded, with nice words and questions, a comment I left there on his “Nuclear Crony Capitalism” post.

So naturally I wrote more.

Here’s the relevant comment thread, plus my excited scribblings at the bottom (now up; thanks, Matt!). Skip to the bottom if you’re in a rush:

Posted by, TokyoTom (not verified)

Matt, great post — but I think you’ve only barely scratched the surface on the ‘crony capitalism’ institutionalization of risk.

I’ve spent a bit of time delving into this at my blog that Ludwig von Mises Inst kindly hosts:

– Sorry, but I can’t resist asking: Feel Sorry for Tokyo Electric Power Co?, http://tokyotom.freecapitalists.org/2011/03/27/39-resist-feel-tokyo-electric-power/, a tribute to Lew Rockwell’s ‘Feel Sorry for BP?’)

– Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning:  http://tokyotom.freecapitalists.org/2011/03/26/institutionalized-moral-hazard-fun-nuclear-power-japan-prepare-glowing-twilight-scattered-fallout-morning/

– My posts exploring the ramifications of the state grant of ‘limited liability’ corporation status: http://tokyotom.freecapitalists.org/?s=limited+liability

 – The case of BP: http://tokyotom.freecapitalists.org/?s=BP+gulf

 – Not surprisingly, similar issues arise with respect to the rest of the Govt-licensed energy sector and climate: http://tokyotom.freecapitalists.org/?s=climate+liability

 Thus small things contribute to the Road to Serfdom: http://tokyotom.freecapitalists.org/2011/03/27/rot-core-prophetic-words-hayek-grim-threat-posed-erosion-quot-market-morals-quot/ and http://tokyotom.freecapitalists.org/?s=prophetic+words+from+hayek+grim+threat

I hope you’ll take your concern for nuclear crony capitalism even further.

TT

Wednesday 30th March 2011 – 04:39am

Posted by, Matt Ridley

Tom,

very interesting. Thanks. will follow up.

Matt

Wednesday 30th March 2011 – 04:54am

Posted by, Robin Guenier (not verified)

Matt:

This is an intriguing post …. If one agrees (and I do) that the moral hazard enjoyed by financial institutions is deplorable, then logically it’s impossible not to take the same view of crony capitalism and nuclear power. And, as j ferguson and Tom have pointed out, it doesn’t end there. For example, I’ve been involved with the UK defence industry and recently with the appalling NHS computer system – in both cases, I’ve seen huge overruns and vast sums wasted. Classic examples, I suggest, of “government and capitalists colluding against the market”: neither the government nor its suppliers are penalised; all the pain is passed onto the public. And, if that is unacceptable – and surely it is – it’s hard to dispute Tom’s conclusion that the state grant of limited liability may be the problem: “one of the key roots of snowballing corporate statism”.

And yet … and yet: the industrial revolution and the huge benefits it has provided to society were built on the foundation of limited liability. Moreover, many major projects that would not have been implemented without an alliance between capitalists and government have turned out to be widely beneficial despite seemingly inevitable delays and cost overruns.

Is there a distinction to be drawn and, if so, where?

Robin

Wednesday 30th March 2011 – 07:32am

Posted by, Matt Ridley

Robin,

Yes. I agree with both points you make and see what you mean about limited liability’s role and the importance of govt-driven infrastructure. Compulsory purchase for railways and canals springs to mind: easier in Birtain than in France.

Not quite on the same lines, but sometimes I get criticised for being too hard on government and I reply that if Carnegie and Rockefeller and Maxwell were bad, then they weren’t half as bad as Hitler, Mao and Pol Pot.

I hope to get time to dig further into this issue.

Matt

Wednesday 30th March 2011 – 10:59am

My follow-up thoughts (readers may be disappointed that I haven’t loaded this down to cross-references to relevant posts from this blog):

Robin, your statement that “the industrial revolution and the huge benefits it has provided to society were built on the foundation of limited liablity” is a statement of fact – not one necessarily of causation – but so has been our financial house of cards: banks are corporations, shareholders have limited liability (and megabanks are public cos in which shareholders are even further removed from oversight), and depositors are insured by Uncle Same. As a result, depositors don’t bother to check out what a crapload of risk that traders and execs are piling on in order to get bonuses, and Uncle Sam and his legions of wizards set up regulations that the smart boys at Goldman and lawyers figure out how to finesse to load up ever more risk at the lowest possible capital – BANG! And all thanks to the wonders of institutionalized misincentives!

Sure, we got wonderful things from complex organizations, all of which remain in check somewhat by competitions. But there’s been a lot of abuse, alot of risk-shifting, alot of Superfund sites, alot of barriers to entry raised by the very regulations whose purported intent is to rein in the bad behavior, massive statism, and a ball and chain of costly and intrusive IP legislation and enforcement.

I’ve given a very short summary of the dynamics at this post but it’s a fairly obvious and understandable game of whack-a-mole, where government and the big boys – with their unlimited lives, purposes, facelessness, deep pockets and revolving doors – always seems to benefit while ordinary citizens and smaller firms and potential rivals get whacked.

It is very clear that limited liability of shareholders is a gift from government at the expense of un-consenting creditors (‘victims’ IOW), and thus is a subsidy from the public as a whole to the wealthier classes who owned corporations and still by and large are the shareholder class.

Corporations used to be very rare – the grants have a very dubious history, typically one of false justifications of offering a ‘public good’ in exchange for monopoly rights. The owners of very limited life, limited purpose firms somehow always managed to get the special deal extended. So we got bigger firms and more corruption, and labor unions and then regulations and workers and citizens finally started to get fed up.

The widespread statism and government-provided social welfarism – now falling into cynical kleptocracy and fuelling a breakdown in initiative, integrity and other virtues Hayek saw are necessary for market-based wealth generation to works to work – we now see are part of the price we’ve paid. The other part of course is damage to peoples’ lives, property, communities and to whatever public or community property that corporations can get their hands on and strip, without have an owner’s incentive to balance possible revenues over the long run.

Is this kit and caboodle a necessary part of “capitalism”? I don’t think so. Wall street banks and investment firms were private partnership for most of their lives, Amex was a listed corporation who owners had UNLIMITED liability, and Lloyds of London itself was not a firm but a private MARKET of names who all had unlimited liability. Many firms used to have only partially paid-in shares, so that managers had a call in case more capital was needed for new projects or to pay off debt.

Just because we’ve democratized corporate formation by opening the floodgates of socializing risk to anyone doesn’t mean ways can’t be found to put an end to institutionalized moral hazard. Eliminating unlimited liability would shift risk and responsibility for oversight back to a conveniently truant shareholder class from government and the public at large. It would of course mean that people not in a position to evaluate risks would be less likely to invest, making firms work harder to earn trust and get capital. Credit evaluation, rating agencies and insurers would all compete to step into the breach and to lower and spread risk.

Better-managed firms are more profitable than the big Frankensteins we have lumbering around these days; while reform would not happen overnight, it is not only desirable but possible. Firms whose shareholders bear the risk that they may be held liable for damages can be expected to be more cautious and thus could be exempted from the regulations that have been found needed for the Frankensteins. Thus both risks and barriers to entry could be lowered, and consumers and could determine what works best. Other initial steps could be to encourage firms whose shareholders have only fractionally paid-in shares. In the US, at least, corporations are creatures on state law, so just one state is needed to start such an experiment (which would be possible and protectable under the Constitution).

Well I’ve run on quite a bit in my excitement. My sincere apologies! Let me toddle off for a wee bit of sleep.

Tom

[Bob Murphy linked to this earlier, I post this for those of you who missed it or want to flip it to others.]

From the man who gave us the YouTube animated hit ‘Bank Bailouts Explained‘, this latest now has over 4 million views [also, see my posts on the roots of our financial mess in moral hazard generated by deposit insurance and lack of ‘Skin in the Game’ by executives, traders and shareholders!]

[View:http://www.youtube.com/watch?v=PTUY16CkS-k&feature=mfu_in_order&list=UL:550:0]