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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Sunday, December 07, 2008

The Conflation Conflict

Roderick Long created quite a stir with his recent article in Cato Unbound, "Corporations versus the Market; or, Whip Conflation Now."

He attracted some criticism for his list of the ways that government intervention benefits big business, specifically, against its smaller competitors and against the general public:

As I have written elsewhere:

One especially useful service that the state can render the corporate elite is cartel enforcement. Price-fixing agreements are unstable on a free market, since while all parties to the agreement have a collective interest in seeing the agreement generally hold, each has an individual interest in breaking the agreement by underselling the other parties in order to win away their customers; and even if the cartel manages to maintain discipline over its own membership, the oligopolistic prices tend to attract new competitors into the market. Hence the advantage to business of state-enforced cartelisation. Often this is done directly, but there are indirect ways too, such as imposing uniform quality standards that relieve firms from having to compete in quality. (And when the quality standards are high, lower-quality but cheaper competitors are priced out of the market.)

The ability of colossal firms to exploit economies of scale is also limited in a free market, since beyond a certain point the benefits of size (e.g., reduced transaction costs) get outweighed by diseconomies of scale (e.g., calculational chaos stemming from absence of price feedback)—unless the state enables them to socialise these costs by immunising them from competition – e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.

Nor does the list end there. Tax breaks to favored corporations represent yet another non-obvious form of government intervention. There is of course nothing anti-market about tax breaks per se; quite the contrary. But when a firm is exempted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.

Intellectual property laws also function to bolster the power of big business.

But what ignited the real controversy was his claim that the net impact of government intervention promotes larger firm size than would prevail in a free market:

In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles.


Part I. Roderick Long vs. Peter Klein

The first and most important negative reaction came from Peter Klein:

As Roderick rightly points out, in the mixed economy large corporations are among the prime beneficiaries of government largess, such that a wholesale defense of "big business" is silly and counterproductive for libertarians. However, Roderick spoils (for me, anyway) an otherwise excellent summary by jumping to the unwarranted conclusion that today's corporations are, on average, larger, more hierarchical, and more diffusely owned than the firms that would emerge under laissez faire....

Klein listed a number of specific objections to Long's argument, based on past arguments with both Long and me.

The problem is that [Long's and Carson's] argument cuts both ways. Certainly large firms benefit from the state. But so do small firms. Corporations are under stricter antitrust and regulatory scrutiny, are more likely to be the victims of political rent extraction (in Fred McChesney's sense), and are subject to stricter disclosure requirements (SOX being only the most visible, recent example) than their smaller competitors. Small firms benefit from state-funded incubators, SBIR awards, regional development grants, and a host of other interventions designed to foster "entrepreneurship." Trade barriers, war, state control of education, and a host of other interventions retard the international division of labor, reduce stocks of human capital, and lower the marginal product of labor, all of which reduce the scale and scope economies that favor large-scale production.

Which set of effects outweighs the other? It is impossible to say, ex ante. The firm on the purely free market could be larger, more vertically integrated, and more hierarchical than the typical corporation under the mixed economy. Moreover, the worker-owned cooperative, the partnership and proprietorship, the decentralized "open-production" system, all suffer from serious incentive, information, and governance problems, almost none of which are mentioned in the anti-corporation libertarian literature. I suspect this literature's preference for small-scale production is based primarily on aesthetic, rather than scientific, grounds.

Further, Klein challenged Long on his failure to address the large body of literature on the organizational weaknesses of worker cooperatives. He cited arguments in an earlier blog post of his at Organizations and Markets on the agency and incentive problems entailed in "Vaguely Defined Property Rights" in alternative organizational models (i.e., stakeholder ownership as an alternative to traditional residual claimancy by shareholders). In such organizations, he argues, free rider problems result from property rights not being adequately defined to ensure that actors "bear the full costs or receive the full benefits of their actions." Agency problems result, as well, from property rights being "non-tradable, insecure, or unassigned." Cooperatives and stakeholder organizations also have a problem with short time horizons among their members.

An anonymous email correspondent of Stephan Kinsella's (surely not Mary Rosh!), remarking on Klein's critique, wrote

Long is taking some haymakers right on the chin. I don't see how he makes an effective rebuttal. He should throw in the towel.

Klein's response is what I was waiting for. A truly devastating dissection of Roderick's argument, which now lies in shambles....

I give him credit for kickstarting a very welcome conversation on the corporation. Caplan is right -- this conversation has been ridiculously lively. But as the conversation continues, Long's contribution is getting more and more demolished. That's not surprising. Long's anti-corporate view relies heavily on Carson, and many of Carson's positions can't stand up to serious scholarly scrutiny. When Long presided over a symposium issue of JLS on Carson's work, it was obvious that he sympathizes with it, but he played it safe by criticizing a relatively minor mistake by Carson. Now that he has openly defended one of Carson's more central claims, he is getting the same pummelling that Carson would take if his scholarship ever received more mainstream attention.

Well, golly! As unprepared as I am to deal with criticisms by mainstream academicians and all, I'll give it my best shot.

From my perspective way out here in the outer reaches of crankdom, anyway, Klein's arguments don't seem all that "devastating." His examples of antitrust law and protectionism aren't even relevant to the point at issue. Antitrust law, in the handful of occasions where it has been used to significant effect, has affected the balance of power--not between large and small firms--but between gigantic firms and absolutely gargantuan firms (i.e., between oligopoly firms and monopoly firms). And protectionism benefits mainly national industrial giants at the expense of transnational firms (when Long's argument concerns the role of state intervention in enabling those giant national firms to come into existence in the first place).

As P.M. Lawrence pointed out in the comments to Klein's critique,

This affects the competitiveness of mega-firms with large firms. It has no bearing on the competitiveness of smaller firms with these.

Long responded, along similar lines, that trade barriers "insulate large firms from foreign competition," which means "they must be divided between the two sides."

Antitrust law, in particular, is a poor choice of example. The Clayton Act was showcased by Gabriel Kolko in The Triumph of Conservatism as an example of Progressive Era legislation passed at the behest of big business to restrain competition. Its practical effect, through restraints on "unfair competition," was to bolster attempts by trade associations to restrict price cutting. It thereby permitted, for the first time, stable oligopoly markets under the control of a handful of firms. As Butler Shaffer elaborated, in In Restraint of Trade, the "unfair practices" subsequently defined by FTC regulation included "selling of goods below cost or below published list of prices for purpose of injuring competitor...."

As for Klein's arguments on the agency problems resulting from vaguely defined property rights in cooperatives, this strikes me as almost a mirror-image description of the agency problems in the conventional, allegedly shareholder-owned corporation. As Long responded,

I found this claim puzzling, since “vaguely defined property rights” are notoriously a problem that plagues the corporate form. It is unclear who owns the corporation, given that there is no identifiable group whose relationship to the corporation involves the usual characteristics of ownership such as unlimited liability (in tort). Note that I’m not claiming that shareholders ought to have unlimited liability; at any rate, I see the point of the argument that their separation from direct day-to-day control makes their exemption from liability reasonable. (I’m undecided as to whether I agree or disagree with that argument, but at any rate I don’t automatically dismiss it.) But the case against regarding them as fully liable seems like an equally good case against regarding them as full owners; it turns them into something more like clients of the corporation, leaving it unclear where the real ownership lies. Perhaps some division of ownership between shareholders and managers can be achieved contractually in a way that mirrors current corporate structure, but even so, corporate ownership will then be neither more nor less “vague” than in non-corporate forms of enterprise.

Klein, in his rejoinder, fixated mainly on Long's reference to limited liability, arguing against holding shareholders stritly liable for the corporation's actions and debts. But this is a bit like Lincoln's Jesuit who, accused of killing ten men and a dog, triumphantly produced the dog in court. From reading the paragraph above, it should be clear that Long mentioned limited liability as one facet of a broader problem: the vagueness of ownership rights in the corporation, given the ambiguous division of control between management and shareholders. Klein failed to address the broader issue at all.

Klein's rejoinder also included a restatement of the agency problems resulting from a lack of tradable ownership claims, which mean that

owners do not share the gains from increases in the capital value of the firm, and have reduced incentives to pursue long-term objectives.

There is, in fact, a considerable body of literature on the agency problems resulting from vaguely defined property rights in the conventional corporation. The problems, briefly stated: that tradeable instruments do not constitute ownership claims in any real sense; that internal stakeholders like human capital have no property rights in the equity they create (and hence no incentive to increase productivity); and that management not only self-deals from capital it did not contribute, but also appropriates the productivity gains created by others' efforts, and therefore has the time horizons of a Turkish tax farmer. Corporate mangement--standing in as "owner" to risk capital that involves no personal loss, and assigning transfer prices to goods for which there is no outside market--resembles nothing so much as the management of state enterprises under Lange's market socialism, "playing at market" in Mises' memorable phrase.

Shareholders have few or no genuinely enforceable ownership rights now, for which reason management has "reduced incentives to pursue long-term objectives." There is also a wide body of literature on the short time horizons of corporate management: their gutting of human capital, stripping of assets, and hollowing out of long-term productive capability in order to maximize short-term paper returns and game their own bonuses and stock options. Robert Jackall (Moral Mazes) uses the terms "starving" and "milking." If anything, corporate management's tendency toward such behaviors has been grossly exacerbated by the ostensible resurgence of "shareholder capitalism" and the "entrepreneurial firm" since the 1980s.

Luigi Zingales, for example, argues ("In Search of New Foundations," The Journal of Finance, August 2000) that a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization.

The root of all these problems is the very pretense that management represents shareholders or that the latter are the owners in any real sense, which is as transparently false a legitimizing ideology as the claim of Soviet industrial management to represent the workers or the workers' state. Corporate management, in fact, is a self-perpetuating oligarchy in control of a free-floating mass of unowned capital. It uses its purported representation of shareholders as a legitimizing ideology to insulate it from accountability to internal stakeholders, and is free to expropriate the latter's efforts because of the vaguely defined property rights in the organization.

More generally, hierarchy and the separation of labor from residual claimancy are inherently prone to incentive and agency problems, because conflict of interest is the primary result of the authority relationship. Authority is a means for externalizing costs on subordinates and appropriating the fruit of their efforts. Worker cooperatives require far less front-line supervision precisely because the work force has residual claimancy and internalizes the results of its ownership. In addition, the cooperative avoids many of the Hayekian information problems involved in the centrally planned corporation because those in possession of distributed or idiosyncratic knowledge about production are in control of the work process.

I have found that the most useful contributions of radical organization theory are often derived from the insights of mainstream organization theory, logically implicit in mainstream theory but never developed to its obvious conclusion in mainstream work. Zingales' argument, for example, is based on a classic article by Sanford Grossman and Oliver Hart ("The Costs and Benefits of Ownership," Journal of Political Economy 94:4, 1986) on the way assignment of property rights in the firm affects incentives; parties without residual claimancy, they argue, will be less likely to invest in the productivity of the firm because of the lack of ownership rights in their share of the increase. It's also a commonplace of organization theory that residual claimancy should normally be vested in the owner of the hardest to monitor factor or the factor with the highest agency costs, in order to economize on monitoring costs. As I argue in Chapter Nine of my forthcoming book, labor (as a result of the problems inherent in incomplete contracting and endogenous enforcement) is almost always the factor hardest to monitor.

Residual claimancy by workers is so rare, despite being the most efficient solution to the agency problems involved in hierarchy and the separation of labor from ownership, because it conflicts with the structural presuppositions of actually existing capitalism. The conventional firm presupposes hierarchy and the divorce of labor from ownership, and then tries to find a mechanism to elicit effort from those who have no rational interest in maximizing productivity. All the management fads of the week, from the 1990s on, are reminiscent of the old anarchist joke about the cook who tries serving poison mushrooms with white sauce, poison mushrooms with brown sauce, grilled poison mushrooms, etc., and wonders why he can't find a recipe that doesn't give him the bellyache. All the management theory experiments with hierarchy-plus-this and hierarchy-plus-that are attempts to find, against all odds, an efficient way of organizing business enterprise based on inherently irrational principles.

In his response to Klein, Long also addressed the example of government aid to small businesses. The effect, he said, was not to promote small business at the expense of large, but to promote small business at the expense of smaller.

...to borrow Bastiat’s phraseology, the small firms that benefit from government assistance are those that are seen; the ones that are most harmed by government action are those that are unseen because they are prevented from coming into business in the first place. In the absence of licensure, zoning, and other regulations, how many people would start a restaurant today if all they needed was their living room and their kitchen? How many people would start a beauty salon today if all they needed was a chair and some scissors, combs, gels, and so on? How many people would start a taxi service today if all they needed was a car and a cell phone? How many people would start a day care service today if a bunch of working parents could simply get together and pool their resources to pay a few of their number to take care of the children of the rest? These are not the sorts of small businesses that receive SBIR awards; they are the sorts of small businesses that get hammered down by the full strength of the state whenever they dare to make an appearance without threading the lengthy and costly maze of the state’s permission process. The assistance that small firms receive comes largely at the expense, not of larger firms, but of still smaller firms—or of those who would start such smaller firms if they could.

As Jesse Walker has observed:

Removing occupational licensing laws alone would unleash such a flood of tiny enterprises—many of them one-man or one-woman shows, sometimes run part-time—that I doubt the elimination of antitrust law and small-business setasides would offset it. Especially when large businesses have proven so adept at using antitrust and setasides for their own purposes.

A genuine freed market, then, might well see what Sam Konkin described as the dissolution of the proletariat in the entrepeneuriat.

Klein, in his rejoinder, responds to this with his own argument from "the unseen":

But the same argument applies to large firms. We see those that benefit from government action, but we don't see those that are harmed--the small firms that would have become large, the large firms that would have become larger or more diversified or more hierarchical or whatever, were it not for the predator state. Imagine the large, highly efficient firms we might see in a truly free market!

The problem with this argument is the discrepancy between the room for growth at the low and high ends of the size spectrum, respectively. At the lower end, the ability of individuals to form small businesses with almost no capitalization outlays, relying mainly on the spare capacity of the household capital they already own (starting a neighborhood bakery with one's ordinary kitchen oven, starting a cab service with a car and cell phone, etc.), would likely result in at least an order of magnitude increase in the number of small businesses. What corresponding room for expansion is there at the high end of the spectrum? The gap between the largest firms that exist now and the largest conceivable firm isn't all that great; compared to the explosion of self-employment in the household and informal economy, and the proliferation of small ad hoc businesses outside of current local licensing and "safety" regimes, what significant difference is there between an industry controlled by three or four oligopoly firms engaged in slightly unstable administered pricing, and an industry controlled by a single monopoly firm engaged in perfect administered pricing? At the high end of the spectrum, as both Long and P.M. Lawrence pointed out, the alternative is between enormous and gargantuan. At the small end, it's a choice almost between two different worlds.

What I find especially astonishing is that Klein ignores the high-end limits to growth implied by his own article, the classic "Economic Calculation and the Limits of Organization." By the line of argument set out in that article, the predominant oligopoly firms in the existing manufacturing sector are already demonstrably above Rothbard's threshold of calculational chaos. Rothbard argued, specifically, that rational calculation becomes impossible whenever no external market exists for an intermediate good. Since, in fact, the majority of intermediate goods used by the typical manufacturing corporation are firm-specific, their transfer prices must be assigned internally rather than based on outside markets.


Part II. Roderick Long vs. J.H. Huebert and Walter Block

Will Wilkinson objected to Long's emphasis on transportation subsidies as a centralizing force (favoring Wal-Mart's "warehouses on wheels" business model, in particular).

...when the primary subsidy is the national and local automobile-centric transportation infrastucture, I can’t really see the point in picking on a company that makes consumers better off by making the most of the tax-funded infrastructure everyone uses.

J.H. Huebert and Walter Block make a similar argument.

it's not clear why government roads give Wal-Mart an advantage over local businesses. Perhaps Long is arguing that Wal-Mart wouldn't be able to deliver goods to its stores but for the roads, and then local businesses (selling locally produced goods?) would remain in business....

We hate to commit the tu quoque fallacy, but do not Roderick Long and his leftist confreres also use these vehicular thoroughfares? If so, this charge of his against Wal-Mart comes with particular ill grace from that source. And while there might be a hermit or a Rip Van Winkle who does not utilize statist streets and roadways, virtually everyone is "guilty" of this behavior – and the market for everyone’s products (even philosophy lectures) is distorted by the roads’ presence.

This argument, that everyone benefits from infrastructure, is a common one. But as Long pointed out,

the fact that everyone uses the tax-funded highway system doesn’t mean that everyone benefits from it equally; firms with wider distribution, and so higher shipping costs, benefit more from public highways than their competitors, and to this extent public funding of highways constitutes a net redistribution from local firms to nationwide firms.

It should be self-evident that when the state subsidizes particular inputs, it amounts to a shift in competitive advantage toward firms whose business model relies most heavily on those inputs, and away from those whose business model does not.

Huebert and Block continue on the same issue, recycling the familiar argument that the free market might make long distance transportation cheaper:

But there is no reason to think that Wal-Mart – or some other big business – wouldn't find other ways of delivering goods over long distances in a free market. Indeed, but for government intervention in the market for roads and transportation generally, it is entirely possible that there would be better, cheaper means for Wal-Mart to get goods to its stores.

The free market might very well provide cheaper roads, in the sense of their total net cost. But the problem is not so much their net cost from the standpoint of society as a whole, as the portion of net cost that is borne by those who impose that cost. As Long argues:

Huebert and Block speculate that, but for state intervention, Wal-Mart might have at its disposal some even cheaper means of distribution. No doubt it would. But surely what’s at issue is not Wal-Mart’s absolute cost level, but whether, thanks to government intervention, its costs are artificially lower than those faced by its competitors.

As for the rest of the Huebert-Block critique, it doesn't just tend toward incoherence. It's already there. In making their criticisms they display the most superficial awareness, not only of the actual content of the articles by Long and by Charles Johnson that they're criticizing, not only of the Rothbardian tradition which they ostensibly espouse, but of what they've written elsewhere in the same article.

For example, their objection to Long's use of the term "corporate power":

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

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

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

Instead, only the state has power.

But as Long points out, Huebert and Block go on to write, scarcely twelve lines later:

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

After essentially restating Long's argument, Huebert and Block compensate by putting a different argument in Long's mouth:

But Long appears to assume that big firms should always gain at the expense of their smaller rivals.

Huh? As Long explicitly stated (in a comment under Klein's initial critique):

We both agree that there are governmental benefits and governmental burdens flying in all directions; the question is whether there's any perceptible systematicity as to the direction of benefits and burdens.

His argument, from the beginning, has been not that government benefits big business alone, but that "the primary and disproportionate beneficiaries of government privilege tend to be corporations, particularly large corporations."

And Long provides a number of citations to no less an authority than the Big Dawg himself, one Murray Newton Rothbard, on the existence of corporate power.

Incidentally, in speaking of corporate power I am simply following the example of Murray Rothbard—a theorist of whom Huebert and Block, Rothbardians both, ordinarily think quite favorably. Rothbard had no problem referring to the “corporate power elite” (here), or describing political favoritism as a case where “government confers this power on a particular business” (here), or labeling our current political system a “corporate state” (here). Moreover, Rothbard defined the “ruling elite” (here) as consisting not only of the “kings, politicians, and bureaucrats who man and operate the State,” but also those “groups who have maneuvered to gain privileges, subsidies, and benefices from the State.” Of course Huebert’s and Block’s status as Rothbardians does not mean that they must agree with Rothbard about everything; and perhaps this is an area where they think Rothbard went astray. But in that case, if, as they say, my “importance as a libertarian philosopher” makes my comments “all the more alarming,” Huebert and Block must presumably be still more alarmed at the potentially malign influence of such similar comments coming from Rothbard, a far more prominent and influential libertarian thinker than myself. Or if they aren’t, why aren’t they?

Consider also this Rothbard quote, courtesy of Peter Klein:

...in the contemporary world of total neo-mercantilism and what is essentially a neo-fascist “corporate state,” bigness is a priori highly suspect, because Big Business most likely got that way through an intricate and decisive network of subsidies, privileges, and direct and indirect grants of monopoly protection.

In addition, this argument from Huebert and Block has a couple of other weaknesses.

First, Hessen argued, not that the corporation is currently a contractual means by which investors agree to limit liability, but that that benefit could be achieved by free contract absent the current statutory regime of general incorporation. And in any case, the argument misses the point: that by making the process automatic and providing a ready-made procedure for it, rather than requiring investors to negotiate it with other parties from scratch, the state privileges the corporate form against other alternatives and weakens the bargaining power of those who would prefer not to deal with it. I mean, doesn't NLRB certification just recognize an entity that could be formed entirely by contract?

And second, their emphasis on the corporation-state dichotomy ignores the issue of the corporation's role as a component of the state, or of the coalition of ruling class forces in control of the state. Murray Rothbard himself was quite friendly toward the Power Elite analysis of C. Wright Mills and G. William Domhoff, which stressed the rotating pool of personnel between the top political appointees of the state and the senior management and boards of directors of the corporation. Or as Brad Spangler put it, the guy holding the bag is as much a robber as the guy holding the gun.

Huebert and Block also make the rather astonishing argument that the very existence of any small business at all alongside big business proves something (I'm not sure what, exactly) about the relative privileging of big against small:

From the fact, however, that tiny grocery stores exist cheek by jowl with large corporations in this industry, we can deduce that there cannot be advantages for the latter that are so strong as to drive into bankruptcy the former, even in our mixed economy. Similarly, there are small restaurants that continue to serve the public, in the face of gigantic chains and franchises such as McDonalds, Wendy’s, Burger King, etc. Long gives us no compelling reasons why McDonald’s would go away but local hamburger stands would thrive if the state were to disappear.

If this argument means anything--and to be charitable I suppose we must assume it does--it means that the state's privilege to bigness isn't sufficient to drive small business off the field altogether. I'm not aware of anyone who would argue differently, because obviously it would be an extremely difficult argument to sustain on empirical grounds. The disagreement, rather, concerns the extent to which McDonald's could survive alongside small local restaurants in a freed market.

In his response, Long not only cited McDonald's reliance on subsidized transportation for its business model and its benefiting from the USDA Market Promotion Program (a benefit unavailable to mom and pop burger joints). He also reiterates his argument from "the unseen," used against Klein above:

Moreover, it costs $250,000 to start a McDonalds franchise; would such franchises really be competitive with small local firms if the cost of starting the latter were not set artificially high by licensure, zoning, quality standardization, and other regulatory requirement?

Huebert and Block also object to Long's treatment of differential tax breaks as benefiting some businesses against others, drawing on the old Austrian argument that tax loopholes are entirely different from subsidies.

They are, indeed, entirely different--at least technically. But as I have argued elsewhere, they have the same practical effect as subsidies. The effect of offering tax loopholes to those firms engaged in favored business models (e.g. accelerated depreciation, the R&D credit, the deduction of interest on debt, exemption of stock transactions involved in mergers from capital gains) has exactly the same effect, mathematically, as would obtain from starting with a tax rate of zero and then imposing punitive taxes on the competitors of those following such business models.

Long himself has been careful to avoid any generalizations about culpability for such tax benefits. Nevertheless, he argues, they clearly benefit some businesses at the expense of others, and make some business models artificially competitive.

But of course I never said it was wrong to accept selective tax breaks. If a neighborhood thug breaks everyone’s leg but mine, because he likes me, I’m not obligated to demand that he break mine too. My point was just that if I then win all the footraces against my neighbors, I probably owe my success to the thug’s intervention – perhaps innocently so, assuming I did nothing to encourage the thug’s policy, but innocent or not, I still can’t say it was simply through my own talents and effort that I succeeded.

Along the same lines, Huebert and Block write,

Apparently Long is blaming Wal-Mart for profiting from selling goods that were transported over government roads that already existed and were not built for Wal-Mart's benefit. It is not at all clear what Wal-Mart could do to avoid criticism for this. What method of transporting goods isn't subsidized?

But to repeat, the point is not that Wal-Mart is culpable for benefiting from such subsidies--merely that they do benefit, and that their business model requires such subsidies. Once again, quoting Long:

But whether or not Wal-Mart is to blame for highway subsidies, the fact remains that it does benefit from them more than its local competitors do, and to this extent its success is not a product of the market and so is not a reliable predictor of what we might expect to see if the market were freed.

Perhaps the most egregious misreading Huebert and Block make is of Charles Johnson's blog post on labor unions, and Long's use of it in his own article.

Long also laments that our hampered free market doesn't give unions enough power. He writes: "Legal restrictions on labor organizing also make it harder for such workers to organize collectively on their own behalf."

Given that the law allows some workers to not only organize themselves but also coercively organize others, it's not clear what Long is talking about. To support his claim, he cites a blog post which laments that U.S. labor laws do not go far enough. We should support current labor laws, says Long's source, but ideally we will return to the days of more "militant" unions.

You remember "militant" unions – the kind that used to (and, well, still do) beat and kill workers who do not cooperate with them. Long and his "comrade," of course, make no mention of the unions' bloody history.

It's hard to find a charitable explanation, short of dyslexia, for H & B's mischaracterization of Johnson's argument as a lament that "U.S. labor laws do not go far enough." As Long points out,

...Huebert and Block duly clicked on the link; but evidently they read Johnson’s piece with even more haste than they read mine, for they produce a truly bizarre summary of it: according to Huebert and Block, Johnson “laments that U.S. labor laws do not go far enough. We should support current labor laws . . . but ideally we will return to the days of more ‘militant’ unions.” In fact Johnson’s article calls for the repeal of all labor legislation ad its replacement by an unregulated labor market....

As for the rest of it, since Johnson's entire post was an extended analysis of the specific ways in which the law restricts the freedom to organize collectively, Long's rejoinder recapitulated the argument (no doubt thanklessly) for H & B's benefit, and Johnson followed it up with a rejoinder of his own, I refer you to them. Suffice it to say here that essentially every characterization made by H & B is nearly a 180 degree reversal of Long's and Johnson's actual argument.

H & B continue, on the same subject:

Unions are like a tapeworm on the economy, sucking sustenance out of businesses. The entire rust belt is a result of unions demanding wages higher than worker productivity. The present problems of the Detroit Three (Ford, Chrysler, General Motors) are mainly dues to their foolishness in not withstanding the unwarranted demands of the United Auto Workers.

Replace "unions" and "wages" with "CEOs" and "salaries," and you get a pretty accurate assessment of the situation. The present problems of the Detroit Three, in fact, are mainly due to the mismanagement and pathological management accounting system described by William Waddell and Norman Bodek: valuing inventory as an asset, absorbing overhead by "selling it to inventory" instead of addressing it directly, and treating management as a fixed cost, while treating human capital as a variable cost.

One of the coauthors expressing this outrage over union greed, by the way, is also a well-known defender of price-gougers as heroes of the free market. But as I've said elsewhere, any time you see libertarians attacking a specific example of behavior they normally defend in principle, you can guess the principle in this specific case is being used to the benefit of workers. As Brad Spangler once challenged the author of an anti-union diatribe at Mises.Org,

Are you implying that sellers ought only passively accept or decline deals and never assertively negotiate with a potential buyer, merely so long as more than one potential buyer exists?...

1) If so, do you apply that dictum universally, or just in the case of labor deals?

2) If so, AND if you limit that view solely to the labor market, then I must ask what (in economic terms) is so special about labor?

If so, AND if you apply it universally, then I must say you're really doing yourself a disservice when it comes to selling a home or car....

That statement [that there is no way to sell anything for a higher price than the highest bidder is willing to pay] sort of misses the point -- namely, that rhetorical efforts to systematically discourage assertive negotiation by one subset of transaction participants (under color of economic thought) are a misguided effort to cripple the market's own discovery process for determining what "the highest bidder is willing to pay."

Part III. Roderick Long vs. Stephan Kinsella

Some of Long's critics focused, not so much on the argument itself, as what it "sounds like." Stephan Kinsella, in comment under Klein's first post at Mises Blog, objected to Long's reference to

the surreal insanity that actually characterises the daily work experience in large businesses--"Dilbert" is popular because it's so depressingly accurate. It's a lot to swallow to suppose that that situation owes little or nothing to governmental distortions.

His response:

The Dilbertish portrayal of the "daily work experience" as depressing has a Marxian whiff about it, doesn't it? And it lacks a sense of perspective--cubicle life seems far preferable to working in the coal mines, which itself must have seemed preferable to a pre-industrial hand-to-mouth subsistence existence.

In a subsequent comment, he wrote:

And it is indeed true that criticisms of corporate power are usually anti-market ideology, and should be dismissed as such. Critics of corporations are in the grip of anti-market ideology, as Roderick notes. When left-wingers complain about corporate libertarians, they are confused. They are not responding sincerely or honestly to a genine tendency.

This is not the first occasion on which Kinsella has dismissed arguments on such "sounds like" grounds. For example, in an argument over whether the state, by reducing the transaction costs of establishing the corporate form, shifted bargaining power toward those who prefer the corporate form, responded:

The notion of "bargaining power" is leftist to the core.

In that case, Murray Rothbard must have been "leftist to the core," since he repeatedly remarked on the effect of state policies in making some factors artificially scarce in relation to others, and thus artificially inflating their returns.

Such an approach is ironic, given Kinsella's vulnerability to a similar line of attack. For example, criticisms of "intellectual property"--one of his own pet issues-- are also usually associated with "anti-market ideology." In fact, I personally encountered a Randroid who refused to hear any arguments against IP law as a monopoly because it "reminded him of" what he constantly heard from the "commies." This is the same line of "reasoning" used by neocons' who dismiss Justin Raimondo as a "librull" because anti-war arguments these days are conventionally associated with the Left.


Part IV. Roderick Long vs. Bryan Caplan

Bryan Caplan raises a series of objections to Long's assessment of the prevailing effect of government intervention. First, immigration:

...I'm afraid Rod overlooks much more important beneficiaries of government privilege than corporations: Lower-skilled workers in the First World. Lower-skilled workers in places like the U.S. earn several times as much as equally-qualified people in the Third World. The reason is clearly immigration restrictions--with modern transportation and credit markets, there's no way that price differentials of that size could long persist....

My point is that compared to immigration restrictions, government privileges to corporations are barely worth mentioning - and yes, that includes the unprecedented bailouts of 2008.*

[* Consider: If the only effect of immigration restrictions were to double the earnings of 70,000,000 Americans from $10,000 per year to $20,000 per year, the annual effect of immigration restrictions would equal the cost of the notorious $700 billion bailout!]

The most glaring problem with Caplan's argument is the fundamental self-contradiction involved in his statement of it. At one point, he reassures us, "I'm the first person to point out that immigration hurts lower-skilled Americans less than most people think." Now surely, if unrestricted immigration could in fact result in the wages of 70 million people being halved, that's probably not less of a hurt to lower-skilled Americans than "most people think." But the contradiction deepens. As evidence of his reassurance on the relative harmlessness of immigration, he links to an earlier post of his in which he cited George Borjas' estimate that immigration has reduced the wages high school dropouts by 8%. Caplan, in that post, argues that the long-term effect of immigration on dropout's wages is only half that, and the effect on all wages is zero:

Immigration has enabled millions to live vastly better lives with no long-run effect on average wages.

So which is it? Will immigration hurt lower-skilled Americans more or less than most people think? Will it cut the wages of seventy million people in half, by 8%, by 4%, or by zero?

On a less fundamental level, there are problems with the way Caplan frames the issue. First, he neglects the extent to which state policy has shaped the overall economic structure within which labor is hired in the first place. The state's policies of subsidizing technical education, R&D, capital accumulation and firm size have promoted a business model based on capital substitution and deskilling, and led to a two-tier labor force. In an American economy based on the integration of small-scale electrical machinery into local craft production (in other words, an economy on the model of Emilia-Romagna rather than Sloan and Chandler), there probably wouldn't be nearly as many unsilled workers in the first place.

Second, he neglects the extent to which the existence of large, low-wage labor forces in the Third World, seeking employment in the West, is the product of neoliberalism--an economic model in whose development the state has played a central role. If a few hundred million less peasants had been evicted from their land over the past several decades, in a modern-day reenactment of the Enclosures, the pool of people willing to accept wage labor on whatever terms offer would likely be diminished. If neoliberal and Washington Consensus policies had not promoted a model of economic "development" based on extractive industries, cash crop farming, and the supply of sweatshop labor to foreign capital, rather than small-scale industrialization for local markets, likewise, the available supply of immigrant labor would probably be diminished.

In short, Caplan accepts as "normal" the current structure of the state capitalist economy, the current balance between skilled an unskilled labor in the American economy, and the current wage levels and desire for foreign work in the Third World at face value. Then he examines how a change in a single factor, holding all the other factors in the mercantilist-corporate economy constant, would affect labor. This is what C. Wright Mills called "crackpot realism." A good example of crackpot realism is Ralph Kramden, speculating on the outcome of one of his get-rich-quick schemes: "Norton, when I'm a rich man, I'll have a phone put in here on the fire escape, so I can make my big business deals when I have to sleep out here in the summer."

Caplan's argument also begs the question of just how effective current immigration restrictions actually are. Arguably, the neither-fish-nor-fowl regime currently in place has little effect in terms of constraining employers' access to illegal immigrant labor, if they actually want it badly enough. As often as not, the state looks aside with a wink and a nudge as employers hire illegal aliens. The main effect of their formal illegal status is to increase their dependence on keeping the employer's favor for their continued stay here, and thus reduces their bargaining power. For this reason, employers relying heavily on an illegal workforce are most prone to modern-day slavery and other abhorrent practices. And arguably, the present regime is the worst of all possible worlds from the standpoint of the bargaining power of native labor. If borders were genuinely and completely closed, of course, the bargaining position of native workers would be improved. But if immigration were completely unrestricted, it's plausible that absolute levels of immigration would increase modestly at most, while immigrant workers would be much more likely to organize openly against their employers and protest unacceptable working conditions. At present, employers have access to about as much illegal help as they want, despite the laws on paper, but can use the technical "illegal" status to reinforce workers' reliance on the as patron and prevent them standing up for their rights.

Caplan's second objection is that government aid cannot ultimately benefit corporations. Against Long's argument, which he restates as "government support for corporations allows them to survive despite blatant inefficiency," Caplan writes:

But does this really make sense? Suppose, for example, that the government made corporations tax-exempt. Would this actually benefit corporations? In the short-run, yes. But these short-run profits would encourage the formation of more corporations - and the dissolution of non-corporations. This process would continue until corporations earned only a normal rate of return. Even with favorable tax treatment, corporations based on "insane directives" would still go bankrupt.

This doesn't mean that differential tax treatment is harmless. When you encourage less efficient forms of business, you reduce production, and the world gets poorer. But the primary victims of these inefficiencies aren't small businesses; they're consumers - the ultimate inelastic resource.

Huh? Caplan seems to be taking the factor of differential tax benefits to corporations in isolation, holding constant all other factors like ease of market entry and restraints on competition within an industry, and then arguing that aid to corporations would cause them to outbreed their habitat like deer and suffer a large-scale die-off. But the argument is not simply that government policy favors the existence of something that's called a "corporation." It's that the government skews the market toward fewer, larger firms and toward a stable oligopoly structure that shuts smaller, more efficient competitors out. The whole point, from the standpoint of big business, is for the handful of incumbent firms to control output and prices and restrict market entry in order to prevent competition from lowering the rate of profit.

Third, Caplan argues that double taxation of corporate income, under the corporate income tax, discourages corporations "when they are more efficient than other forms of organization." The corporate income tax, Caplan writes,

matters less than it used to, but the U.S. federal government still gets 15% of its revenue from it. That's about $375 B. Except for the year of the bail-out, it would be very hard for all corporate welfare combined to approach this figure.

Of course, if I'm right about tax incidence, the main effect of the double taxation of corporate income isn't that corporations suffer. The main effect, rather, is that we discourage corporations when they are more efficient than other forms of organization.

Now, this may occur at the small end of the scale, when a sole proprietor considers incorporating to shield his income from liability; if his income is taxed twice, he may decide the benefits of the corporate form are not worth it.

But again, the debate does not concern the magical virtues of everything with an "LLC" after its name. The corporate form is important primarily to the extent that it affects the main dynamic under question: the balance of power between large and small firms. For the question actually being debated--the contribution of government policy to the predominance of big business--Caplan's is a singularly unfortunate choice of examples.

The real "main effect" of the corporate income tax is to encourage retention of earnings rather than the payout of dividends that might be reinvested by shareholders in other portfolio items (e.g., smaller, more efficient startup firms). The overwhelming majority of new capital investment in the large corporation is financed by retained earnings. And as Martin Hellwig argues, in most cases this does not mean that large corporations must carefully prioritize in order to ration new capital investment within the strictures of retained earnings. It means that the capital available from retained earnings exceeds the opportunities for sensible investment. The effect is that the big keep getting bigger, and experience a glut of capital; capital tends to pool inside the large organizations, while small startup firms are stunted from lack of circulation.

This effect is reinforced, by the way, by SEC security registration regulations which restrict the investment opportunities available to ordinary small investors largely to large, established national firms. Only "accredited" investors, who tend to fall in the top two percent of income, can buy stock in small, local firms.

All this is in addition to other effects of the corporate income tax. For example, Caplan mistakenly compares the total incidence of corporate income tax liabilities with "corporate welfare," as if the relevant comparison were between the liabilities and benefits to "corporations" as a whole. But the debate concerns the relative competitive advantage conferred on big business as against small. And the relevant information for such an assessment is not the total scale of "corporate welfare," in the sense of direct government expenditures. It is the differential application of the corporate income tax between large and small corporations. The corporate income tax is an ideal cartelizing device, heightening the difference in privilege between favored and nonfavored firms. And the firms favored by differential tax exemptions are, overwhelmingly, those described by Thomas Ferguson as the centerpiece of FDR's big business coalition (large, export-oriented, capital-intensive, and high tech). They are, essentially, the commanding heights of the corporate economy: primarily Galbraith's "technostructure" and the large group of firms that received the majority of their R&D funding from the state during WWII and the decades immediately following. When the cumulative effect of the R&D credit, the exemption of interest, and the depreciation allowance are taken into account, firms that hit the trifecta (capital- and tech-intensive firms that engage most heavily in mergers in acquisitions) often pay little or no corporate income tax.

The difference in privilege is heightened by the fact that what income tax does fall on the largest, most favored corporations can be passed on through administered pricing, whereas the share that falls on smaller firms in the competitive sector cannot.

Suffice it to say that any enemy of big business should have, among his top priorities, the abolition of the corporate income tax--or at the very least, closing all tax loopholes and then lowering the tax rate to revenue-neutral levels.

59 Comments:

Anonymous Soviet Onion said...

Cool stuff as always, Kevin. I was hoping that you would join in and supply us with another voice of sanity, although I'm impressed with Steven Horowitz, too.

December 07, 2008 10:30 PM  
Blogger Stephan Kinsella said...

Kevin, I'm not quite sure what you disagree with in my comments. I had written, as you quote:

"And it is indeed true that criticisms of corporate power are usually anti-market ideology, and should be dismissed as such. Critics of corporations are in the grip of anti-market ideology, as Roderick notes. When left-wingers complain about corporate libertarians, they are confused. They are not responding sincerely or honestly to a genine tendency."

When mosts leftists--certainly most non-libertarian leftists--attack the corporation, they do so on anti-market grounds (at least in substantial part). You wrote,

"For example, in an argument over whether the state, by reducing the transaction costs of establishing the corporate form, shifted bargaining power toward those who prefer the corporate form, responded: "The notion of "bargaining power" is leftist to the core."

In that case, Murray Rothbard must have been "leftist to the core," since he repeatedly remarked on the effect of state policies in making some factors artificially scarce in relation to others, and thus artificially inflating their returns."

I was not referring to the real tendency of the state favoring one person over another thru its policies, but of the oft-cited concept "bargaining power" which permeates leftist reasoning used to invalidate contracts and undermine property rights. It is the equation of economic influence with physical force that is used to justify laws against actions that are not initiations of violence. We libertarians are opposed to the initiation of violence, not to the initiatio of "economic force," whatever that is.

December 07, 2008 11:40 PM  
Blogger scumble said...

Stephan, I think the problem is using the accusation of using "leftist" terms in a way that looked like an ad hominem attack. Anyone who has been reading Long and Carson should realise that their purpose is to reclaim terms stolen by "leftists" that originally came from 19th-century anarchists.

The way it sounded to me was that accusations of "leftism" were being used to discredit an argument. You may be right that "leftists" use a term in a certain way, but that doesn't mean the terms cannot be used in another way.

"We libertarians are opposed to the initiation of violence, not to the initiatio of "economic force," whatever that is."

I don't think anyone participating in the discussion uses the idea of "economic power" in the same way as a liberal might. There is a more subtle point about how certain people or organisations have disproportionate influence on the state, and that is where money becomes powerful. The combination of money and violence is what distorts everything.

I think we all know that anti-market arguments are confused, but the disagreements emerge around what does and does not represent "market phenomena". In a sense conservative libertarians are allowing the left to frame the debate by reacting negatively to issues that have been somehow apportioned as necessarily statist, when this is not the case at all.

December 08, 2008 2:49 AM  
Anonymous P.M.Lawrence said...

There are some typos here, and some US-centrisms (Ralph Kramden? I had to figure it out), and as I have already mentioned elsewhere you do an injustice to Turkish tax farmers (their poor incentives were recognised and offset by central supervision, and in some cases by making them at least partly heritable property, so that the poor incentives only took effect under weak Sultans).

Mainly, though, this feels stale to me from already having been over the original posts. It leaves me wondering if it works free standing, for people who come to this post first. The only new element I see is the role of corporation tax, which comes late in the piece. (Incidentally, under the Australian tax system dividends are generally "franked" under an "imputation" approach, meaning the prepaid tax can be deducted from personal income tax to avoid double taxation - though low income retirees might not benefit from that. Similarly, British Post Office and Building Societies' payments were not liable for income tax purposes - as I have heard is the case with US municipal bonds.)

The Mises blog had another thread going at about the same time, on "Why Are Wages Low in Developing Countries?". I can't quite pull it together at the moment, but it somehow struck me that this was looking at many of the same issues from the other end, as it were, showing how forms and structures work or worked out in other times and places; those and ours are part of a broader range that can be unified to bring out a continuity, showing similarities and differences over the range.

December 08, 2008 4:39 AM  
Anonymous JOR said...

Here's the thing: So what?

Arguing against something by saying, "But that's what the commies think!", may score you points with Ann Coulter and Randroids and Misoids and paleotards and all the rest of those clowns, but it doesn't really get us any closer to the truth about anything. Maybe we need something like Godwin's Law to correct for this annoying tendency in libertarian debate.

December 08, 2008 4:49 AM  
Blogger Jeremy said...

Glad to see you're back, Kevin. If this article is even mildly representative of what you'll be contributing to C4SS, I'll be writing them a check very, very soon.

I need to read through this post again to appreciate everything, but I just want to throw in there that the SEC accredited investor rule was something I was just about to write about, prompted by Fred Wilson's post on the matter.

Finally: do you feel that you were excluded from the debate on Cato Unbound because you're not an academic? Were you invited to participate? I thought Long's survey of the left libertarian arguments against big business was great, but obviously this article is devastating and it would be a shame if the only way these ideas could get any treatment (a fair one seems out of the question) is if they were proxied by "academicians".

December 08, 2008 6:25 AM  
Blogger Jeremy said...

Kinsella (and many right-libertarians) seems unable to apprehend an argument directly. How about, instead of rebutting the entire left, or how a line of argument makes you "feel", or how it "sounds", you simply rebut, say, the arguments of the person on whose blog you're commenting? That would be refreshing - both in that we'd benefit from a genuine challenge to Carson's thesis, and that we could hear new ideas from Misesians instead of prefabbed rebuttals from the anti-leftist rhetoric handbook. *waves hands* Carson is over here.

December 08, 2008 6:32 AM  
Anonymous Brad Spangler said...

@Kinsella re:"It is the equation of economic influence with physical force that is used to justify laws against actions that are not initiations of violence."

Before getting pedantic about the NAP, consider that we're discussing how the economic influence of particular market actors is derived from physical force in the first place.

December 08, 2008 7:07 AM  
Blogger Stephan Kinsella said...

scumble: "Stephan, I think the problem is using the accusation of using "leftist" terms in a way that looked like an ad hominem attack. Anyone who has been reading Long and Carson should realise that their purpose is to reclaim terms stolen by "leftists" that originally came from 19th-century anarchists.

"The way it sounded to me was that accusations of "leftism" were being used to discredit an argument. You may be right that "leftists" use a term in a certain way, but that doesn't mean the terms cannot be used in another way."

I agree. I basically mean "socialist" by this, in a sense antithetical to libertarian principles. I realize Carson and Long et al. are not socialists. I do believe the leftist hostility to commerce, individualism, free markets, etc. and ignorance of economics and individualist political principles makes their arguments against "capitalism" flawed. The left-libertarians and other libertarians who rightly criticize modern statist corporatism need to be wary of this.

"I don't think anyone participating in the discussion uses the idea of "economic power" in the same way as a liberal might. There is a more subtle point about how certain people or organisations have disproportionate influence on the state, and that is where money becomes powerful."

Of course--any influence over the state is bad. This is not what the term "bargaining power" refers to, AFAIK.

"The combination of money and violence is what distorts everything."

Sure.

"In a sense conservative libertarians are allowing the left to frame the debate by reacting negatively to issues that have been somehow apportioned as necessarily statist, when this is not the case at all."

I don't regard myself as a "conservative" libertarian at all--but as a libertarian. But sure, we should not let the left frame the debate.

JOR: "Arguing against something by saying, "But that's what the commies think!", may score you points with Ann Coulter and Randroids and Misoids and paleotards and all the rest of those clowns, but it doesn't really get us any closer to the truth about anything. Maybe we need something like Godwin's Law to correct for this annoying tendency in libertarian debate."

Whatever--but the idea of "bargaining power" is economically illiterate and is used to justify statist laws that prohibit or regulate peaceful action between consenting adults. The Marxiod notions of alienation of and exploitation of labor are also flawed and lead to flawed reasoning and conclusions. (More on this below.)

Jeremy:

"Kinsella (and many right-libertarians) seems unable to apprehend an argument directly."

This is an unjustified insult--and why are you assuming I'm a "right" libertarian? I find the right/left labels fairly useless but a fair application would probably find me more on the left side than the right.

Brad Spangler: "@Kinsella re:"It is the equation of economic influence with physical force that is used to justify laws against actions that are not initiations of violence."

"Before getting pedantic about the NAP, consider that we're discussing how the economic influence of particular market actors is derived from physical force in the first place."

Like, ahem, Wal-mart and Macy's?

Libertarians already know that the state is too involved in business life. This is not news to us. Yes, we oppose state subsidies and laws that favor any business over another. Where we disagree is in casting productive, peaceful companies as "unlibertarian" or "part of the state" merely because (a) they use the corporate form; or (b) because of bigness. On the free market, as Hessen has shown, companies could organize as something similar to corporations; and there would be large and small companies.

***

As to some of the particular comments by Carson:

"Klein, in his rejoinder, fixated mainly on Long's reference to limited liabilit, arguing against holding shareholders stritly liable for the corporation's actions and debts. But this is a bit like Lincoln's Jesuit who, accused of killing ten men and a dog, triumphantly produced the dog in court. From reading the paragraph above, it should be clear that Long mentioned limited liability as one facet of a broader problem: the vagueness of ownership rights in the corporation, given the ambiguous division of control between management and shareholders. Klein failed to address the broader issue at all."

Who cares if there is a "vagueness" (read: complexity) in the ownership of corporate assets? How is this unlibertarian? Why is it any outsider's business?

"The root of all these proble
ms is the very pretense that management represents shareholders or that the latter are the owners in any real sense, which is as transparently false a legitimizing ideology as the claim of Soviet industrial management to represent the workers or the workers' state."

Libertarianism does not require any "pretense" that "management represents shareholders or that the latter are the owners in any real sense." It only requires respect for property rights and not interfering in capitalist acts between consenting adults. That is, if you can somewho show that "management" does NOT "represent" shareholders, or that they are not "the owners" in "any real sense"--so what? Whose rights are being violated? If you don't like the way a firm is organized, don't work there; don't invest in it. Beyond that: in a libertarian society we need only identify who has the right to control a given resource; and who is responsible for the commission of various torts or crimes. If a collection of people (shareholders, directors, managers, creditors) whatever all agree to some complicated internal set of rules that specify their right to control a set of private assets, then *their* rights are not violated (they all agreed to it), and outsiders have no business complaining, any more than they would have a right to complain about the "messiness" of ownership claims within a neighborhood that has an ambiguously drawn set of restrictive covenants. For example if I buy a share of Wal-Mart stock I am in some sense an owner, but only in specified ways--I don't have the right to use the Wal-Mart HQ for a picnic etc. I have agreed to a contractual set of rules that divide control--day-to-day control is given to managers; and a set of procedures determines how changes to the rules or to the decision-makers is made. From the perspective of an outsider, Wal-mart property is owned by a set of people (shareholders plus directors plus managers).

"Corporate management, in fact, is a self-perpetuating oligarchy in control of a free-floating mass of unowned capital."

Unowned? Hogwash. Walmart's inventory and factories and stores are not unowned by any stretch of the imagination. Just because some anti-market or anti-capitalist types don't like the messiness and complexity of the internal rules governing rights of control (ownership) of these assets is utterly irrelevant. You don't have to work for them, or invest in them. This "unowned" comments has a whiff of Georgism about it.

"It uses its purported representation of shareholders as a legitimizing ideology to insulate it from accountability to internal stakeholders"

And here we have the leftist buzzword: "stakeholder". This is routinely used by governments to justify infringing property rights.

Again: in libertarianism, the corporation does not need to justify anything--so it does not need to pretend it "represents" anyone. If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it.

As for "stakeholders," it depends on who this means. For people that are employed by, or contract with, or invest in, or sell to or buy from the company--their rights are defined by contract already. The only other people left would be those who have torts committed against them by employees of the company. A libertarian theory of causation (as I noted in the aforementioned post) is what is needed here, to determine who should be vicariously responsible for the actions committed by employees--should anyone else be? Should the corporation as a whole? THe managers? Executives? Directors? Shareholders? Creditor? Vendors? Customers? Consultants? Contractors? "Stakeholders"? Whoever it should be, they should of course not be exempted from liability. But most people, including bad-lefties and libertarian lefties (and most libertarians in general) seem to simply assume that vicarious liability and respondeat superior are valid, and that absent state law, shareholders ought to be liable for torts committed by employees. But to my knowledge no one has shown that they should be. This has has to be established before one can bluster in outrage at the failure of the state to hold shareholders personally liable for such torts.

"and is free to expropriate the latter's efforts because of the vaguely defined property rights in the organization."

And here we have what appears to me to be Marxian reasoning: the "expropriation of efforts"? What? I'd like to see exactly whose "labor" is being "stolen"? An employee? Hey, he isn't compelled to work for them.

"More generally, hierarchy and the separation of labor from residual claimancy are inherently prone to incentive and agency problems"

Here we go with complaints about the separation of labor from "residual claimancy." Libertarianism does not require labor to not be "separated" from XYZ; it does not base property rights on whether there are or are not "incentive" or "agency" "problems". If incentive or agency problems that arise when using a given firm structure, presumably people over time will invest in or employ more efficient structures. If they don't--hey, it's their money.

"Luigi Zingales, for example, argues ("In Search of New Foundations," The Journal of Finance, August 2000) that a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization."

How can you "expropriate" value? Do people own their value? Workers do not have any ownership claim to a company they have worked for--they have a claim to whatever they have contractually agreed to, that's all.

December 08, 2008 12:04 PM  
Anonymous MJP said...

"Libertarians already know that the state is too involved in business life. This is not news to us. Yes, we oppose state subsidies and laws that favor any business over another. Where we disagree is in casting productive, peaceful companies as "unlibertarian" or "part of the state" merely because (a) they use the corporate form; or (b) because of bigness. On the free market, as Hessen has shown, companies could organize as something similar to corporations; and there would be large and small companies."

So? On the free market, people could organize as something similar to feudal fiefs as well - does that mean actually-existing feudal fiefs were voluntary? We're talking about actually-existing corporations here. To make the claim that actually-existing monster corporations are legitimate because they *could* have arisen voluntarily is on the same order as the argument that the State is legitimate because it *could* have arisen voluntarily. It's just a privatized version of the social contract theory.

December 08, 2008 2:25 PM  
Anonymous Araglin said...

KC,

Great post. Except that, insofar as your discussion of "vagueness" and "unowned capital" goes, I think Kinsella's got the better part of the argument. The absence of some one unitary owner for every discrete ownable object does not render the object un-owned. Otherwise, there would be no way to cognize complex use rights to commonses, coops, or the like. However, I think you're general point against Klein still holds: any vagueness appertaining to cooperative ownership equally appertains to corporate ownership.

Where Kinsella goes wrong, IMO, is in saying that "bargaining power" is an analytically useless category. If a law protects one set of employers from competition from other employers (including potential new entrants), then the favored encumbents can use that legal privilege in order to negotiate with their employees for lower wages (than they would otherwise have been able to get away with), and their customers for higher prices (than they would otherwise have been able to get away with). This, in my book is an instance of artificially generated "bargaining power."

To explicate this concept in terms of standard Austrian price theory, see Menger or Bohm-bawerk's canonical expositions of the difference in price that tends to emerge when only one buyer (or seller) faces a number of sellers (or buyers), as compared to when several buyers (or sellers) face a number of sellers (or buyers). Not every exercise of this sort of "bargaining power" constitutes a rights-violation vis-a-vis the counter-party to the resultant contract (e.g., when an innocent incumbent employer benefits from the imposition of a regulation); hence, only non-coercive responses to such exercises of "bargaining power" could be squared with libertarian principles.

One of the reasons I think Kinsella is allergic to talk of "bargaining power" is that most Contracts casebooks are chock full of 60s-vintage cases where judge refuse to enforce so-called adhesion contracts (as being "substantively unconscionable") simply on account of their sense that one party has "excessive bargaining power." In those cases, assuming that the "bargaining power" was purely a market phenomenon, nothing that would not render the contract unenforceable as a matter of justice (although, a particular arbitration agency could probably adopt a policy of refusing to come to the aid of parties seeking to enforce such contracts...).

December 08, 2008 2:50 PM  
Anonymous Mike said...

Kevin,

Thanks for this post. I found your comments on Bryan Caplan's contributions to be particularly helpful. I'm also glad to know that you found Block and Huebert's essay to be as misguided and incoherent as I did. I'm actually shocked by how bad it was. They should be embarrassed.

As you noted, the most important criticism of Long has come from Peter Klein. In a sense I think those who side with Rod on the issue have sufficiently shown that it is highly likely that we’ll see a plethora of small businesses in a freed market if for no other reason than the elimination of licensing, zoning, and regulatory laws and capitalization requirements. But I’m not so sure that it’s been shown that the pervasiveness of large, hierarchical firms will diminish in a (at least no-proviso Lockean) freed market:

For starters, illustrating the ways in which big business gains comparatively from government intervention is not enough to conclude that big business receives a NET benefit. Klein is right to demand that we also consider the advantages other market actors receive from the state as well as the burdens that the state imposes on big business. Even then, it’s one thing to demonstrate that existing big businesses owe much of their success to government privilege, but this doesn’t establish that big business as such won’t exist – possibly pervasively -- in a freed market. As Klein suggests, in the absence of state intervention, we might find a whole host of businesses expanding that have been artificially restricted by the state – even if it’s correct that existing big businesses will falter. It’s not enough – though highly important -- to consider diseconomies of scale and incentive/agent problems associated with large business. In order to make a meaningful prediction about business organization in a freed market, there has to also be an analysis of economies of scale and the incentive/agent problems associated with small – including worker-owned -- business.

Mike

December 08, 2008 3:52 PM  
Anonymous DixieFlatline said...

As is typical in mutualist debates and discourse, vague descriptions of business and corporations allow the most ridiculous of blanket statements to be made.

December 08, 2008 3:53 PM  
Blogger Kevin Carson said...

Thanks to all for the comments.

Stephan: Your substantive point-by-point critique of the argument merit treatment in an additional "Part V: Kinsella vs. Carson" (along with other comments here touching on the areas of disagreement), so I won't duplicate it here. With luck, I should have it up in the next two or three days.

PML: Thanks for the critique. I think I caught most of the typos by the second or third try, although I'm sure I missed some.

I deliberately used the "Turkish tax farmer" reference to yank your chain. Seriously, I was aware it would probably incur your wrath, but the popular conception of Turkish tax farming (as with feudalism) is so useful as verbal shorthand that I went with it.

As for Ralph Kramden, I thought surely The Honeymooners were part of global culture by now. You've all heard of Mickey Mouse down there, right?

I agree that a major part of the material is recycled. My intention was to arrange it all more or less systematically, and indicate the arguments I thought were inadequately addressed with my additional comments on them. In some cases, you or Roderick anticipated my argument, but I didn't think your critiques were fully and forcefully stated, or got the attention and stress I thought they deserved in the overall debate. I do think my critique of Caplan is mostly original, FWIW.

Jeremy: Thanks. Any time you feel like writing a check, I'm sure Brad can provide you with a prayer cloth blessed by Murray Rothbard. Or better yet, just put your hands on the teevee screen and YOU WILL BE HEALED!

I don't think I was deliberately excluded from the Cato Unbound debate for any particular reason. I just don't have nearly as high a profile in mainstream libertarian circles as Roderick does, with his extensive curriculum vitae in academic journals (although all his kind references to my work surely don't hurt). Come to think of it, though, it may have been limited to scholars in academia.

December 08, 2008 4:07 PM  
Blogger Stephan Kinsella said...

MJP: "On the free market, people could organize as something similar to feudal fiefs as well - does that mean actually-existing feudal fiefs were voluntary?"

No--because feudalism is presumably mired in illegitimate processes and title holdings that allowed the wealth accumulations which allowed the subjugation of the serfs. But when most leftoids criticize corporations, they criticize it for particular features such as "limited liability" or "separation of ownership and control"--but these are things that are perfectly legitimate.

"We're talking about actually-existing corporations here."

Well--I am not sure. First, the leftoids sometimes attack mere bigness (without regard to entity structure); sometimes they attack the corporate form (without regard to size); and sometimes the corporate features they attack, well, they are misidentified (there is widespread confusion about what limited liability laws do) and they are attacked without justification.

"To make the claim that actually-existing monster corporations are legitimate because they *could* have arisen voluntarily is on the same order as the argument that the State is legitimate because it *could* have arisen voluntarily."

A company like Wal-mart, or Macy's, or Google, is previate, started small, and is presumptively providing privately-produced goods or services for sale to willing buyers. I'm happy to remove any state interference and support, and see what happens. If smaller firms predominate, fine. If not, fine. More than that cannot be said, other than: tear down the regulations, laws, and subsidies: tear down the state.

Araglin: "Where Kinsella goes wrong, IMO, is in saying that "bargaining power" is an analytically useless category. If a law protects one set of employers from competition from other employers (including potential new entrants), then the favored encumbents can use that legal privilege in order to negotiate with their employees for lower wages (than they would otherwise have been able to get away with), and their customers for higher prices (than they would otherwise have been able to get away with). This, in my book is an instance of artificially generated "bargaining power.""

" One of the reasons I think Kinsella is allergic to talk of "bargaining power" is that most Contracts casebooks are chock full of 60s-vintage cases where judge refuse to enforce so-called adhesion contracts (as being "substantively unconscionable") simply on account of their sense that one party has "excessive bargaining power." In those cases, assuming that the "bargaining power" was purely a market phenomenon, nothing that would not render the contract unenforceable as a matter of justice (although, a particular arbitration agency could probably adopt a policy of refusing to come to the aid of parties seeking to enforce such contracts...)."


Yes, "bargaining power" I take as a sort of term of art, used widely to justify invalidating agreements and so on--and it's based on bad economics, and on the failure to distinguish between violence and the rightful use of property. If CArson is using it only to refer to *artificially* bargaining power provided by state interference, fine, but the term is misleading. But just as the only true "monopolies" are those granted by the state, so I suppose the only real "bargaining power" that is problemat is that which is a result of state interference.


Carson: "I don't think I was deliberately excluded from the Cato Unbound debate for any particular reason. I just don't have nearly as high a profile in mainstream libertarian circles as Roderick does, with his extensive curriculum vitae in academic journals (although all his kind references to my work surely don't hurt). Come to think of it, though, it may have been limited to scholars in academia."

Hmm, that can't be, since Peter Klein was not invited. Passing strange, no? Hmmmm.

December 08, 2008 4:29 PM  
Anonymous P.M.Lawrence said...

"Luigi Zingales, for example, argues... that a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization."

Over at his rebuttal, Stephan Kinsella builds a great mountain on that single use of the word "expropriated", so I think you should clarify:-

- whether it is your term or whether you are quoting Luigi Zingales; and

- that "expropriated" is the correct term when there are property systems in place that are being overridden, but that something like "appropriated" is the correct term when there are not (your context makes it clear what you are talking about, but Stephan Kinsella omits that context).

I hope to comment on that thread when opportunity permits, hopefully soon.

December 08, 2008 5:14 PM  
Anonymous Pistol Pete said...

This doesn't address the issue of the legitimacy of Big Business; but, why are we distinguishishing between left-, right-, etc- libertarians? It's seems to me one either embraces libertarian principles, per se, or not. Libertarianism is not a means to any particular end; it is an end, itself. It seems some (perhaps most) libertarians view libertarianism as merely a means to get what it is they really want, whether it's workers' co-ops or whites-only lunch counters.

And why all the "-oid" name-calling (and why the name-calling at all for that matter)? Is this what all the cool libertarian bloggers are doing these days? Ugh.

December 08, 2008 5:31 PM  
Blogger James Aragon said...

A blogger from the LRC and basic ally of yours introduced me to this blog via this post. I took the time to read and click through the cross references. Not an easy task for me. I get the impression that the debate here is about what would happen to the corporation in the absence of government regulation. All participants surely agree that the less government intervention in any form, the better. The debate on what occurs in the absence, or what has occurred with great presence of government seems quite wasted. A great intellectual debate, but quite tiresome considering we shall, sadly, probably never know.

December 08, 2008 5:37 PM  
Anonymous Anonymous said...

Kinsella - "I find the right/left labels fairly useless"

Precisely. Forget this emphasis on left/right crap.

December 08, 2008 6:14 PM  
Blogger Kevin Carson said...

Things are starting to snowball, so to keep this manageable I will probably limit my blog post to comments posted so far (absent any totally new and stunning arguments). I will also limit my further commentary to the post itself. I've got to get busy on some other writing projects I've neglected, including C4SS.

Stephan: It could be that academic standing is a necessary, but not sufficient criterion. My guess is that the participants were mainly academic writers who also happened to be on the editor's rolodex (i.e., were already familiar in Cato circles).

PML: Thanks for the heads-up about Stephan's Mises Blog post. Since most of the arguments recapitulate those here, I'll probably focus mostly on those here (otherwise, things will just get too damned confusing).

As you suggested, I used "expropriate" and "appropriate" in a special sense. Here's an excerpt from the blog post in progress:

As Lawrence suggests, they are technical terms from organization theory. They refer to the ability of one party, in the presence of poorly defined property rights that do not efficiently internalize the results of action, to free ride on the value created by the efforts of another party. They are frequently used in the work of Oliver Williamson, and are useful for summarizing the arguments on stakeholder property rights made by Grossman and Hart and by Zingales. I thought they were appropriate to use in the context of Klein's questions regarding the organization theory literature, particularly on the ways that vaguely defined property rights create agency problems. I should have made it clear that they were org theory terms.

And the concept is by no means a monopoly of the left-libertarian tendency in org theory. It was at the heart of Robert Jensen's critique of the bureaucratic corporation and his support for the injection of entrepreneurialism into corporate management. As he perceived it, corporate management, because of poorly designed incentive systems, was engaged in self-dealing that expropriated shareholders and violated their fundamental obligation as agent for the shareholders.

In this case, I think Kinsella was so bemused by the terms "appropriation" and "expropriation," and their seeming Marxist connotations, that he did not pay adequate attention to the arguments I cited from Grossman and Hart or Zingales. The point was that, because of the vaguely defined property rights within the corporation, the equity or book value created by members of the organization is not efficiently allocated among them in such a way as to maximize individual effort or minimize agency problems. And again, to anticipate another possible "so what?" response from Kinsella, I brought all this up specifically in response to Klein's assertions about what the org theory literature has to say about the agency problems and inefficiencies created by vaguely defined property rights in the cooperative.

December 08, 2008 6:49 PM  
Blogger quasibill said...

Araglin,

I think Kevin is using "unowned" in a technical, economic sense, not in the legal or practical sense. Since even in a communist legal system, someone or a group of someones owns the property, in that they have the right to control and dispose of it, the question being asked, and continuously dodged by Kinsella, is what type of property rights avoid Mises's famous calculation problem. What Kevin has shown previously in response to Kinsella's (muddled and wrong in so many respects it takes pages to list them all) defense of the corporation is that Kinsella, and other corporate defenders, have made almost exactly the same arguments communist and socialist defenders made that Mises was critiquing with his calculation argument. That Kinsella is incapable of recognizing this fundamental flaw in his reasoning despite being spoon fed it repeatedly certainly speaks of something. His histrionics and mud slinging are similar to Reisman's repeated resort to "Marxist!" when addressing Kevin's arguments: a concession that he has nothing substantive to hang his hat on.

As you note, and Kinsella concedes here, he often responds to how third parties use terms or arguments, and ignores what is actually written in the document he is responding to. It is this sort of trollish behavior that caused me to stop taking him seriously. Kinsella is closer to Block and Huebert than to Klein (although I admit I was less than impressed by Klein's dodgy response to Long's essay, but at least he was responding to what Roderick wrote, even if he chose to invert Roderick's main and lesser points, and treat the lesser points as the crux of the essay).

December 09, 2008 5:34 AM  
Blogger Stephan Kinsella said...

Kevin: "In this case, I think Kinsella was so bemused by the terms "appropriation" and "expropriation," and their seeming Marxist connotations, that he did not pay adequate attention to the arguments I cited from Grossman and Hart or Zingales. The point was that, because of the vaguely defined property rights within the corporation, the equity or book value created by members of the organization is not efficiently allocated among them in such a way as to maximize individual effort or minimize agency problems. And again, to anticipate another possible "so what?" response from Kinsella, I brought all this up specifically in response to Klein's assertions about what the org theory literature has to say about the agency problems and inefficiencies created by vaguely defined property rights in the cooperative."

Yes, I read "expropriation" as meaning what it typically means -- theft, typically organized theft by an institution such as the state. As when a host state expropriates property of a company under international law. If you just mean that corporations (firms in general? I am never sure if you are against only big firms; or only corporations; or only big corporations; or only big for-profit corporations) are inefficient--sure. All firms have various inefficiencies and incentive and agency problems. They also overcome other problems (yes, as Klein adumbrates in his classic piece). When the costs of a firm (due to agency, incentive, calculation, etc. problems) become prohibitive and are not outweighed by the gains, then this poses some limits to the size and/or structure/organization of that entity, as determined by competition on the market. I do not see what is supposed to be so illuminating about this fairly simple insight.

But from where I sit, it seems like you guys keep playing a type of bait and switch with your terminology. Someone cheers on the return of "militant" unions: when this is objected to, on the grounds that we libertarians oppose union violence, then they crawfish and dance around and say that if one reads thru 17 email chains he'll see they didn't mean "violent," for heaven's sake. When I object to accusations that companies "expropriate" the "value" of the "efforts" of "stakeholders"--you say by "expropriate" you don't really mean "expropriate"; and by "stakeholder" you don't mean what leftists usually mean by it; and by "bargaining power" you don't mean what leftists usually mean by it.

If someone can give me a dictionary to translate it might be helpful.

December 09, 2008 8:13 AM  
Anonymous Araglin said...

Quasibill,

You said:
"I think Kevin is using 'unowned' in a technical, economic sense, not in the legal or practical sense. Since even in a communist legal system, someone or a group of someones owns the property, in that they have the right to control and dispose of it, the question being asked, and continuously dodged by Kinsella, is what type of property rights avoid Mises's famous calculation problem."

From what you've said here, I doubt that there's any major disagreement here among KC, you, or me on this point, but I'll try to sketch out my position just in case.

I absolutely agree with KC (and Rothbard) that Mises' famous calculation argument against central planning applies also to calculation within corporations, so that(beyond a certain threshold) would (in a freed market) entirely swamp any economies of scale and thereby keep corporations from growing beyond a certain point.

I also agree with KC's basic point that whatever vagueness as to who may do what with what assets in the cooperative would tend to equally exist in the standard business corporation.

What I'm objecting to is in calling the corporation's assets "unowned" in the libertarian-justic sense - to the extent that formulation would entail that those assets could be freely homesteaded by acts of guerilla reclamation. IMO, there's nothing wrong with saying that the corporation (or coop or union) as an entity owns these assets, and that the constituent rights thereto can and should be sorted out inter se (among shareholders, officers, employees, Board Members, and the like) by reference to charters, bylaws, stock subscription agreements, custom/usage, common law precedents, and the like.

It's true that such complex determinations as to who within the corporation (or coop or union) has the right to use, possess, transfer, or exclude may not be suspeptible of any entirely crisp, simple, and unambiguous answer , and to that extent may give rise to agency and monitoring costs (and, thus, might be "unowned" in the literature of orgtheory), but they are still "owned" in the relevant libertarian-justice sense that they are not ripe for being grabbed by agoristically-inclined passers by.*

Does that make sense?

Peace,
Araglin


*You might rightly point out that since these economic problems would make such large-scale capital accumulation within an organization impossible, that any organization who has in the actually-existing market succeeded in accumulating vast amounts is rendered highly suspect. At that point, with a proper showing of wrongdoing, such assets perhaps could be seized from the corporation. However, even here, I would want to insist that just because the corporation isn't the rightful owner doesn't mean that there isn't a rightful owner out there somewhere.

December 09, 2008 12:51 PM  
Blogger scumble said...

"Someone cheers on the return of "militant" unions: when this is objected to, on the grounds that we libertarians oppose union violence, then they crawfish and dance around and say that if one reads thru 17 email chains he'll see they didn't mean "violent," for heaven's sake."

I don't think this a very fair objection though, because one reference to "militant" unions does not summarise the content of an entire article. What's missing is a decent understanding of the background, rather than a superficial reading of the rhetorical style.

Kevin has written at length about various kinds of non-violent union action that don't involve destruction of property, beating up scabs or even striking in the first place.

December 09, 2008 1:39 PM  
Blogger Stephan Kinsella said...

quasibill: "I think Kevin is using "unowned" in a technical, economic sense, not in the legal or practical sense."

Maybe he means, underemployed...?

"Since even in a communist legal system, someone or a group of someones owns the property, in that they have the right to control and dispose of it, the question being asked, and continuously dodged by Kinsella, is what type of property rights avoid Mises's famous calculation problem."

? Excuse me? What am I "dodging"? I am interested primarily, as a libertarian, in libertarian principles and rights. I believe many left-libertarian criticisms of corporations are very confused and just wrong. For one, sometimes they are against the corporate form; sometimes against bigness itself. If this is just a prediction, we can disagree; but they are overly confident in how sure they can be of their predictions *and* because of over-thickness they let this skew or affect their libertarian reasoning.

And as I have noted, the criticisms of corporations for separating property from labor; alienating workers; having inefficiencies due to agency and calculation problems--I just have little interest in these qua libertarian since they do not buttress the left-libertarians' criticism of corporations as being unlibertarian.

" What Kevin has shown previously in response to Kinsella's (muddled and wrong in so many respects it takes pages to list them all) defense of the corporation is that Kinsella, and other corporate defenders, have made almost exactly the same arguments communist and socialist defenders made that Mises was critiquing with his calculation argument. That Kinsella is incapable of recognizing this fundamental flaw in his reasoning despite being spoon fed it repeatedly certainly speaks of something."

More than that--I have no idea what you are talking about.

"His histrionics and mud slinging are similar to Reisman's repeated resort to "Marxist!" when addressing Kevin's arguments: a concession that he has nothing substantive to hang his hat on."

This is unfair. We have substantive disagreements. And we libertarians are opposed to Marxism, you know--and it's not so out of bounds for me to detect it in the face of talk of alienation of workers; criminal capitalism; "expropriation" of workers; and so on.

December 09, 2008 2:00 PM  
Anonymous DLM said...

Stephan Kinsella says:

"But from where I sit, it seems like you guys keep playing a type of bait and switch with your terminology. Someone cheers on the return of "militant" unions: when this is objected to, on the grounds that we libertarians oppose union violence, then they crawfish and dance around and say that if one reads thru 17 email chains he'll see they didn't mean "violent," for heaven's sake. When I object to accusations that companies "expropriate" the "value" of the "efforts" of "stakeholders"--you say by "expropriate" you don't really mean "expropriate"; and by "stakeholder" you don't mean what leftists usually mean by it; and by "bargaining power" you don't mean what leftists usually mean by it."

How can you possibly think that? I have a full time job plus go to graduate school full time so I don't have time to read the "17th email' and you know what? I don't need to, I *almost* always understand what Carson, PML, and Long are saying because I actually bother to read and understand what is being said, rather than engage in knee jerk reactions to various terminology.

Arguing the way you do is extremely dishonest and not very charitable; this is unfortunate because honesty and charity towards those we disagree with are critical components in advancing intellectually and avoiding the abyss of dogmatism.

December 09, 2008 5:23 PM  
Blogger Stephan Kinsella said...

DLM: "How can you possibly think that? I have a full time job plus go to graduate school full time so I don't have time to read the "17th email' and you know what? I don't need to, I *almost* always understand what Carson, PML, and Long are saying because I actually bother to read and understand what is being said, rather than engage in knee jerk reactions to various terminology.

"Arguing the way you do is extremely dishonest and not very charitable; this is unfortunate because honesty and charity towards those we disagree with are critical components in advancing intellectually and avoiding the abyss of dogmatism."

Can we leave the overwrought handwringing out of this? We happen to have a substantive disagreement. You don't need to be insulting and uncharitable to *me*. It could be that Carson et al. can explain away every single idiosyncratic and misleading terminology. But it is not unreasonable at all for a libertarian--who reasonably opposes Marx and his evil ideas and pseudo-science--from detecting some unlibertarian ideas when hearing the terms and reasoning I mentioned. The person using it is free to clarify; it would be my obligation to give his response a charitable hearing.

But to accuse of dishonesty a libertarian who is critical and suspicious of advocacy of "militant" unions; accusations that companies "expropriate" the "value" of the "efforts" of "stakeholders" and "workers"; and use the notion of "bargaining power" routinely uses by socialists to abrogate private agreements--is not fair. Why don't we stick to substance. I assure you I am as interested in liberty, justice, fairness, property rights, and, yes, the plight of the worker and average person as you are. I quite agree that Carson et al. have done a good thing in helping to call attention to a vulgar libertarian glossing over of the sins of modern corporatism. But our goal is liberty, not predictions. Anyone who takes their pet preferences and hazy predictions as being so set in stone and objectively true that they let it infiltrate their libertarian principles so that they are unwilling to condemn window-breaking of companies like Macy's and Wal-mart has a problem.

December 09, 2008 5:44 PM  
Anonymous DML said...

Hi Stephan,

Thanks for proving my point about honesty and charity. The comment about my going to school and working full time was not to lay claim to my plight as a worker or average person (your words, read your own post) but to demonstrate that a person that does not have lots of time to read the material can still understand Carson, et al, without a dictionary to translate, as you suggested.

Anybody can do what you are doing- playing games with semantics and ignoring how people are constructing arguments and using terminology- thereby appearing to those who already agree with you that you are making great arguments against your opponents. Some of the comments over at the Mises blog under your posting aptly demonstrate this.

Note: I am not commenting much on the actual topic because I have not studied much on it and don't really know where I stand at this point. However, I do not like to see people arguing in a way that seems to be improper, hence my comments.

Also, my signature should be DML, not DLM, I typed wrong the first time.

December 09, 2008 6:44 PM  
Anonymous P.M.Lawrence said...

I have finally got my follow up at the Stephan Kinsella thread.

Araglin wrote "there would be no way to cognize complex use rights to commonses..."

That's a nonsense. "Commons" is already a plural term, and "a common" or "the common" is the singular, e.g. Boston Common or Wimbledon Common.

KC writes "As for Ralph Kramden, I thought surely The Honeymooners were part of global culture by now. You've all heard of Mickey Mouse down there, right?"

No to the first sentence, yes to the second. US TV from the 1950s didn't reach the rest of the English speaking world, except indirectly in occasional references in later documentaries about the period or allusions in other, later programmes. Things like the "Lucy" shows reached us, but from the 1960s; it was weird to learn of Ricky Ricardo from the documentaries, when the rest of that programme seemed familiar.

Stephan Kinsella wrote "On the free market, as Hessen has shown, companies could organize as something similar to corporations; and there would be large and small companies".

That's begging the question, building in what you seek to establish in a circular way. Companies are corporations. Without ways for firms to become companies in the first place, clearly that would not happen - and those ways are part of the state assistance. Without that, the nearest that could be achieved would be partnerships with a large number of silent or sleeping partners as well as the active partners, keeping their distance by means of bearer shares or similar. How willing would a small investor be to join in that way, knowing that his equity was largely secured by the integrity of the active partners, and knowing that if he came out in the open to challenge them he would lose his de facto limited liability? He would have an incentive not to play with the big boys, which means fewer big boys in the first place.

'Who cares if there is a "vagueness" (read: complexity) in the ownership of corporate assets? How is this unlibertarian? Why is it any outsider's business?'

But that wasn't the issue. The issue is that corporations suffer from diseconomies of scale and scope as they struggle with these things, so that - without outside help, which by the way makes it unlibertarian and outsiders' business - they would be naturally self limiting in size.

'That is, if you can somewho show that "management" does NOT "represent" shareholders, or that they are not "the owners" in "any real sense"--so what? Whose rights are being violated? If you don't like the way a firm is organized, don't work there; don't invest in it.', "If incentive or agency problems that arise when using a given firm structure, presumably people over time will invest in or employ more efficient structures. If they don't--hey, it's their money.", and 'How can you "expropriate" value? Do people own their value? Workers do not have any ownership claim to a company they have worked for--they have a claim to whatever they have contractually agreed to, that's all.'

That's very "let them eat cake". The problem is that, with the distortions favouring that, the usual "choice" is as between different firms that are like that. Any colour you like so long as it's black.

"Again: in libertarianism, the corporation does not need to justify anything" - oh, yes, it does. It needs to justify all that intervention that brought it into being.

"If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it." But that's not a corporation, it's a partnership.

'"and is free to expropriate the latter's efforts because of the vaguely defined property rights in the organization." And here we have what appears to me to be Marxian reasoning: the "expropriation of efforts"? What? I'd like to see exactly whose "labor" is being "stolen"? An employee? Hey, he isn't compelled to work for them.'

That "stolen" is made up. The answer is clear from the earlier, fuller statement, not covered by that selective quotation: "... a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization." It's not formally "stolen" because there are no formal ownership rights, and it is unethical to the extent that the constrained lack of choice forced people into that vulnerability (see above about all corporations being similar). "Appropriated" might have been clearer in this respect, but "expropriated" also conveys the idea that these things are taken from people who would otherwise have had them. This passage also implicitly defines "stakeholder" - a person who would otherwise have had some of that, who contributed to its being there.

"feudalism is presumably mired in illegitimate processes and title holdings that allowed the wealth accumulations which allowed the subjugation of the serfs".

Actually, it wasn't. The peasants were already oppressed by the time the feudal system came along, and in fact the first phase of feudal holdings was a "free" rearrangement of obligations between people at a higher level; "free" in the sense that there was no pressure between the participants, although they were all reacting to outside pressures from raiders etc. during the Dark Ages. If anything, in other respects peasant conditions improved with the end of centralised structures, apart from the problem of endemic warfare like those raids that feudalism developed to face. Think "Magnificent Seven/Seven Samurai", with the defenders staying on under an in-kind retainer basis.

'Yes, I read "expropriation" as meaning what it typically means -- theft, typically organized theft by an institution such as the state'. Why not read it the way it was first used, with context and all? "... a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization." Likewise it tells you what "stakeholder" is. That doesn't take tracking through several posts. So "If someone can give me a dictionary to translate it might be helpful" probably wouldn't work. He had that right in front of him, but a dictionary would just be something else he wouldn't chase up.

"Workers do not have any ownership claim to a company they have worked for--they have a claim to whatever they have contractually agreed to, that's all". The whole point being brought out was that there is no ownership structure over these matters, and that the outworkings of that had adverse consequences - overall as well as to those who make contributions without formal ownership in the result.

December 09, 2008 7:18 PM  
Anonymous MJP said...

"Anyone who takes their pet preferences and hazy predictions as being so set in stone and objectively true that they let it infiltrate their libertarian principles so that they are unwilling to condemn window-breaking of companies like Macy's and Wal-mart has a problem."

You're still beating this dead horse? Roderick Long and a bunch of other left-libertarians condemned the window-smashing - from what I recall, only William Gillis did not. There is a huge difference between denying the property rights of corporations and denying that any property exists in what the corporations currently claim as property - heck, the State's property is illegitimate, but you don't hear minarchists calling us "road-smashers," do you?

Yet the charge can just as easily be thrown at you - you're letting your predictions about the market cloud your reasoning to the point where you would call upon the violent repression of worker sit-ins. Why is your hazy prediction better than our hazy prediction? Why is yours the default in the case of uncertainty?

December 09, 2008 10:58 PM  
Blogger Stephan Kinsella said...

DML: "Thanks for proving my point about honesty and charity. The comment about my going to school and working full time was not to lay claim to my plight as a worker or average person (your words, read your own post) but to demonstrate that a person that does not have lots of time to read the material can still understand Carson, et al, without a dictionary to translate, as you suggested."

Yes I get that. And I was not referring to you with my "worker" comment. I have no idea why you assume I was. I don't even know who you are.

BTW as for charitable interpretations of left-libertarian language--as for the unfairness of my reading "bargaining power" etc. in the typical socialist way of equating economic "power" with violence and obliterating the distinction between them (which distinction is critical to libertarianism), I just got this email from one of your comrades, proving my point:

"in your rebuttal you seem to suggest that the quasi-authoritarian internal bureaucracy of the corporation is irrelevant, since it is a private entity in competition with other distinct private entities, no one is compelled to participate, everything is governed by volitional contract and there is no strict barrier to the entry of alternatives, ergo no rights are being violated. Theoretically, ok. But a common left-lib rebuttal (more left than lib), is that the initiation of violent aggression is not the only legitimate form of coercion. Economic power disparities that put labor at the mercy of capital are seen as coercive if one believes workers deserve special dispensation as a class and a basic standard of living, even if they cannot attain it through their individual negotiating power as a human resource.

Sure, this is informed by leftist concepts of exploitation and positive rights, but those sentiments are inspired in turn by less quantifiable notions of a basic entitlement to respect and dignity that exempt human beings from being just another input in the
capitalist equation. There is no escaping the broad, cultural
consensus that Labor, especially unskilled, deserve a bare minimum
standard of treatment
—a treatment floor, if you will—that may or may not sit above what would prevail in a super-strict libertarian economy."

Is it any wonder leftists using terms like "bargaining power" etc. are understood in a certain way?

P.M.Lawrence:

"Companies are corporations."

Oh? There are many types of firms--sole proprietorships, partnerships, JVs, PCs, corporations, etc.

" Without ways for firms to become companies in the first place, clearly that would not happen - and those ways are part of the state assistance. Without that, the nearest that could be achieved would be partnerships with a large number of silent or sleeping partners as well as the active partners, keeping their distance by means of bearer shares or similar. How willing would a small investor be to join in that way, knowing that his equity was largely secured by the integrity of the active partners, and knowing that if he came out in the open to challenge them he would lose his de facto limited liability? He would have an incentive not to play with the big boys, which means fewer big boys in the first place."

Hessen explains how it could work. It's not that complicated. Anyone the corporation deals wiht is on notice that they can only pursue certain assets contractually, but not those of shareholders personally. Easy. As for torts, the tortfeasor himself is always liable, and I would argue that anyone who directs him to commit a tort is liable as a co-conspirator. Whether a manager is liable for the torts he tries to prevent his underling from committing is another matter--and still another matter to hold directors, shareholders, .... creditors, employees, vendors, suppliers, stakeholders... all liable too. But if a sound theory of libertarian causation shows shareholders should be liable, fine by me--they would just insure against it; no problem.

"'Who cares if there is a "vagueness" (read: complexity) in the ownership of corporate assets? How is this unlibertarian? Why is it any outsider's business?'

"But that wasn't the issue. The issue is that corporations suffer from diseconomies of scale and scope as they struggle with these things, so that - without outside help, which by the way makes it unlibertarian and outsiders' business - they would be naturally self limiting in size."

Sure but who knows the limit? And of course the "outside help" is unlibertarian (as is the "outside harm" such as taxes etc.). Anyway, so waht if you show that a company is propped up to be bigger than it "ought" to be--? the solution is to remove the "outside help", which all libertarians are already in favor of doing. So what is the fuss here?
"That's very "let them eat cake". The problem is that, with the distortions favouring that, the usual "choice" is as between different firms that are like that. Any colour you like so long as it's black."

Fine, so let's end the state and state subsidies. We are al in favor of this. Not BRAKING THEIR WINDOWZ.

""Again: in libertarianism, the corporation does not need to justify anything" - oh, yes, it does. It needs to justify all that intervention that brought it into being."

But it can't--the intervention is unjustified. We all opppose this. As well as other forms of state intervention.

""If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it." But that's not a corporation, it's a partnership."

I don't care what you call it. I am not fixated on state classifications--they are not fair, just, or objective.

"... a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization." It's not formally "stolen" because there are no formal ownership rights, and it is unethical to the extent that the constrained lack of choice forced people into that vulnerability (see above about all corporations being similar)."

It's almost as if you guys are not against the state, but are against "corporations". I'm a libertarian--we oppose institutionalized aggression (and private aggression too), and thus oppose the state. Not, um, the form of organization some private companies choose.

""Appropriated" might have been clearer in this respect, but "expropriated" also conveys the idea that these things are taken from people who would otherwise have had them."

Who, exactly? Can you give one simple, clearn, concise, concrete example?

"This passage also implicitly defines "stakeholder" - a person who would otherwise have had some of that, who contributed to its being there."

Stakeholder is a term of art used to refer to "those in the community with a stake in a given enterprise," something like that. This notion is routinely used to extort and shakedown business.

""Workers do not have any ownership claim to a company they have worked for--they have a claim to whatever they have contractually agreed to, that's all". The whole point being brought out was that there is no ownership structure over these matters,"

Waht is this supposed to mean? Of course there's an "ownership structure".

"and that the outworkings of that had adverse consequences - overall as well as to those who make contributions without formal ownership in the result."

So? Does this violate property rights?

December 09, 2008 11:38 PM  
Blogger Stephan Kinsella said...

MJP:

MJP said...

"Roderick Long and a bunch of other left-libertarians condemned the window-smashing - from what I recall, only William Gillis did not."

Could be. Could you be so good as to point me to the condemnations?

"There is a huge difference between denying the property rights of corporations and denying that any property exists in what the corporations currently claim as property - heck, the State's property is illegitimate, but you don't hear minarchists calling us "road-smashers," do you?"

But who cares what a statist-minarchist thinks? Property owned by the state and aggressors is one thing. Property owned by presumptively peaceful individuals (even in their business form) should be respected unless you can prove the person is an aggressor or is in receipt of stolen property--same with private homeowners: just bc someone might make a general allegation that "lands were stolen from the Indians" does not mean the current nominal owner can be just kicked out by any random group of thugs. The current owner ought to be treated as the owner until some claimant can show a better claim. We libertarian are for living the real world and being able to use real resources; and against violence unless it is well justified and called for.

"Yet the charge can just as easily be thrown at you - you're letting your predictions about the market cloud your reasoning to the point where you would call upon the violent repression of worker sit-ins."

I did not call for violence against them.

Nonetheless, I do not believe "anything goes". I do not believ everyone is a criminal, or equally criminal. I do believe distinctions can be made: the state and criminals on one side; private society on the other. The interwining is unfortunate but if it were so complete that the private sphere was part of the public, then that would mean we are just one huge socialist state, and economic production would be impossible--contrary to what we see. So until we live in a hopeless totalitarian communist state, and so long as we have a stock market and a private, market sphere distinct from the state, we ought not favor "anything goes" at least with respect to the private side. For that side, our general libertarian preference for peace and trade and prosperity and use of property rights (allocating them to the person with the best claim) ought to govern--it's why we are libertarians in the first place.

It seems to me that the aesthetic dislike for "corporations" and "big business," and the leftian preoocupation with "workers co-ops" and all this nonsense is being used to single out companies simply because they exist in a mixed economy--like we all do.

December 10, 2008 12:04 AM  
Blogger scumble said...

Stephan: "I did not call for violence against them."

Stephan, I think you were misread there because you quoted Rothbard talking about "shooting looters". It was a post at freedom democrats that seems to have misinterpreted that, and I thought the same thing until just now.

You did call peaceful protesters "Fired union thugs" though. Or is trespassing classed as violent? It does seem that a company has got out of its contractual obligations, but I'm not sure how clear the situation is from the information available. I suppose the question you have to ask is what the managers walked away with.

"It seems to me that the aesthetic dislike for "corporations" and "big business," and the leftian preoocupation with "workers co-ops" and all this nonsense is being used to single out companies simply because they exist in a mixed economy--like we all do."

Well there's more to it that that. What tends to bother me is the generally inflated position of management promoted by deep heirarchical structures, meaning that they tend to walk away with a lot more than the workers do. Managers aren't necessarily the great entrepreneurs who make the clever investment decisions, they often use their priviledged control over resources to strengthen their own position.

You could say that these arrangements are arrived at voluntarily, but the question is whether people are just lumbered with these organisations because the alternatives are closed off. I think there are grounds for being uneasy about large businesses and hesitating to cite them as great examples of free market enterprise, but it isn't just because of largeness. I am just not convinced they are really sustainable without a government-supported framework in the background.

It's not unusual for libertarians to talk about the limited options workers have due to the limited employment opportunities. We all tend to say employment conditions will improve from greater employer competition, and this may well put pressure on the management conventions in large businesses.

December 10, 2008 7:53 AM  
Anonymous DML said...

LOL!

Stephan,

I have to apologize. I somehow misread your working comment as referring to me, when in fact you weren't.
So, my sincere apologies!

Now, I step aside, and let those more knowledgeable discuss the issue at hand.

December 10, 2008 4:23 PM  
Anonymous MJP said...

"Could be. Could you be so good as to point me to the condemnations?"

Roderick Long - "I certainly don’t favour hurling rocks at Macy’s windows — whether or not Macy’s turns out to be a legitimate target. Even if a target is legitimate, I think that’s only a necessary condition, not a sufficient one; violence against an aggressor has to have some practical relation to combating the aggression, for one thing."

"Assuming Macy’s isn’t the owner, then by 1960s Rothbardian standards it’s not unowned, it’s owned by its current users (= the workers). That would seem to make the breakage morally problematic! (In any case it’s the workers who are going to have to clean it up.)"

Both of these quotes were comments he made in the discussion under this post:
http://praxeology.net/blog/2008/09/09/say-what

"just bc someone might make a general allegation that "lands were stolen from the Indians" does not mean the current nominal owner can be just kicked out by any random group of thugs. The current owner ought to be treated as the owner until some claimant can show a better claim. We libertarian are for living the real world and being able to use real resources; and against violence unless it is well justified and called for."

That's a false analogy. Land theft from Indians occurred hundreds of years ago - the present owners were not even born when the original theft happened. Corporatism, however, is a continuing form of aggression. If someone out there is charging Indians rent on their own land, that would be continuing aggression too.

" I do not believ everyone is a criminal, or equally criminal. I do believe distinctions can be made: the state and criminals on one side; private society on the other. The interwining is unfortunate but if it were so complete that the private sphere was part of the public, then that would mean we are just one huge socialist state, and economic production would be impossible--contrary to what we see. "

That is a straw-man. We're only saying that part of the nominally private sphere is in the statist sphere. We can't simply draw the line based on the label "private," because it's just a label.

"It seems to me that the aesthetic dislike for "corporations" and "big business," and the leftian preoocupation with "workers co-ops" and all this nonsense is being used to single out companies simply because they exist in a mixed economy--like we all do."

Do you think the mixed economy is neutral? We all know that a neutral state is impossible. So, either the state promotes big business, small business, or its favoritism cuts across big business and small business. In the latter case, the favored small businesses would eventually become big. I can't think of any reason why the State would want to keep businesses in general smaller than optimal size, but plenty of reasons that it would want to make businesses in general larger than optimal size - it's easier to monitor a few large firms than millions of small firms, so it's unlikely that the state would actively promote the latter scenario.

December 10, 2008 4:44 PM  
Blogger Adam Ricketson said...

At the risk of repeating something that has already been said*, I'd like to throw in a few thoughts:

It uses its purported representation of shareholders as a legitimizing ideology...

But many people continue to invest money in corporations, so the service to shareholders probably has some basis in reality.

As for the big vs. small issue, this seems to be an issue for economists more than philosophers (assuming that it is possible to clearly define "big/small" firms and "free/unfree" economies. What does the data say?)...though real people, including activists and legislators, need to work with what they have available.

Anyway, I seem to recall that Europe tends to have larger firms than America -- if Europe is more interventionist, then it supports the view that government intervention supports "bigness'.

Also, regarding government support for small, entrepreneurial firms (i.e. start-ups), these firms are not intended to remain small. They are firms that will either grow large, or be absorbed by a large firm (or fail). I say this specifically from the perspective of technology firms -- they aren't just another competitor in a mature industry, they are supported in the hope of establishing a new industry.

Ultimately, I think it's futile to make these broad generalizations -- that statism promotes centralization. There are a large number of legal structures that are equally individualistic/libertarian (determining the basis for ownership, and the limits of contracts), which would differ greatly in whether they support bigger or smaller organizations.

*I've only read the first few essays over at Cato, and the first half of this essay before skimming the rest and the comments.

December 10, 2008 8:23 PM  
Anonymous P.M.Lawrence said...

Stephan Kinsella quoted me, "Companies are corporations", then wrote "Oh? There are many types of firms--sole proprietorships, partnerships, JVs, PCs, corporations, etc."

I am beginning to suspect a language barrier here, though it seems unlikely. This simply does not make sense, unless he uses company and firm interchangeably (but he doesn't, e.g. in his remark "It seems to me that... all this nonsense is being used to single out companies simply because they exist in a mixed economy"; if he only means firm when he says company, everything in the universe of discourse is a company and there is nothing to single out). Certainly in the British-derived areas, "company" either has a military meaning or (these days, not in the early 19th century) is the ordinary way of referring to a Limited Liability Company (Here in Australia, there are No Liability Companies too). So, companies are corporations, by definition. Firms in general are not companies.

He also quotes me: "Without ways for firms to become companies in the first place, clearly that would not happen - and those ways are part of the state assistance. Without that, the nearest that could be achieved would be partnerships with a large number of silent or sleeping partners as well as the active partners, keeping their distance by means of bearer shares or similar. How willing would a small investor be to join in that way, knowing that his equity was largely secured by the integrity of the active partners, and knowing that if he came out in the open to challenge them he would lose his de facto limited liability? He would have an incentive not to play with the big boys, which means fewer big boys in the first place."...

...then continues, "Hessen explains how it could work. It's not that complicated. Anyone the corporation deals wiht is on notice that they can only pursue certain assets contractually, but not those of shareholders personally. Easy. As for torts, the tortfeasor himself is always liable, and I would argue that anyone who directs him to commit a tort is liable as a co-conspirator. Whether a manager is liable for the torts he tries to prevent his underling from committing is another matter--and still another matter to hold directors, shareholders, .... creditors, employees, vendors, suppliers, stakeholders... all liable too. But if a sound theory of libertarian causation shows shareholders should be liable, fine by me--they would just insure against it; no problem."

Bluntly, this is wrong, because what you get is not a corporation (he also begs the question by using the term "corporation" in there instead of "firm"). I have already stipulated that you could arrange a firm such as a partnership in such a way that it had owners with at least de facto limited liability. However, it would lack at least one essential - defining - feature of a corporation, an enduring nature and existence of its own, separate and distinct from the natural persons forming it. Without the state, you could only get that in special cases like monasteries and sports clubs with their own peculiar internal dynamics. And that means that there would be nothing to hold a limited liability firm together indefinitely, particularly as its size and history built up.

He also quotes me: "...The issue is that corporations suffer from diseconomies of scale and scope as they struggle with these things, so that - without outside help, which by the way makes it unlibertarian and outsiders' business - they would be naturally self limiting in size"...

...then continues, 'Sure but who knows the limit? And of course the "outside help" is unlibertarian (as is the "outside harm" such as taxes etc.). Anyway, so waht if you show that a company is propped up to be bigger than it "ought" to be--? the solution is to remove the "outside help", which all libertarians are already in favor of doing. So what is the fuss here?'

That's missing the point. He is addressing remarks that ought to go to someone who was planning what to do about corporations. However, I was highlighting what the areas were in which that sort of state aid is currently applied. What the fuss is about is, there are people who come out and say "you can take away all the state aid, but making corporations is not state aid and you must continue to have them" - basically, denying the problem and ruling out removing that state aid.

He also quotes me: "If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it." But that's not a corporation, it's a partnership."...

...then continues, "I don't care what you call it. I am not fixated on state classifications--they are not fair, just, or objective."

But it's not the state classification at issue here, it's taxonomy, so we are all talking about the same thing. I already pointed out some important differences - of essence and substance, not naming - between a corporation and even a limited liability partnership.

He also quotes me: '[much of the value created by internal stakeholders is] not formally "stolen" because there are no formal ownership rights, and it is unethical to the extent that the constrained lack of choice forced people into that vulnerability (see above about all corporations being similar)'...

...then continues, 'It's almost as if you guys are not against the state, but are against "corporations". I'm a libertarian--we oppose institutionalized aggression (and private aggression too), and thus oppose the state. Not, um, the form of organization some private companies choose.'

Beep! Either more language barrier, or begging the question. But that is not about "the form of organization some private [firms] choose"; quite simply, for the reasons given above, no private firm ever can become or continue as a corporation without state intervention throughout. It is not truly a distinct entity in its own right as the legal fiction has it, though, but it is an emanation of the state (that's a technical term). So it's not taking my eye off the ball.

He also quotes me: '"Appropriated" might have been clearer in this respect, but "expropriated" also conveys the idea that these things are taken from people who would otherwise have had them'...

...then continues, "Who, exactly? Can you give one simple, clearn, concise, concrete example?"

I can, but I'm not going to unless and until you follow up the material that Kevin Carson was referring to just there and show that you cannot find one there. I can even give an example from my own direct personal experience.

He also quotes me: 'This passage also implicitly defines "stakeholder" - a person who would otherwise have had some of that, who contributed to its being there'...

...then continues, 'Stakeholder is a term of art used to refer to "those in the community with a stake in a given enterprise," something like that. This notion is routinely used to extort and shakedown business.'

There is an inconsistency in this objection. If he does know how "stakeholder" is generally used, he was wrong in objecting to it before. If he does not, why, this gives him enough to work with for this purpose. Either way, each usage is consistent with the other, and the "routinely used to extort and shakedown business" is just another "sounds like" objection - unless and until he follows up the material as I suggested and also finds something to that effect.

'Of course there's an "ownership structure"' - ah, the old unexamined assumption thing.

He also quotes me: "...and that the outworkings of that had adverse consequences - overall as well as to those who make contributions without formal ownership in the result"...

...then continues, "So? Does this violate property rights?"

He is just not paying attention (and it's inconsistent with his earlier 'Of course there's an "ownership structure"'). This has been all about what happens when you do not have property rights in place to send incentives back to those who contribute; you get people contributing less than they would, so it's sub-optimal overall, and they end up contributing some things anyway "for free", i.e. over and above what they are paid for, or else they are made to suffer. It has happened to me, and I'm sure others can comment from their own knowledge.

Separately, Stephan Kinsella comments 'It seems to me that the aesthetic dislike for "corporations" and "big business," and the leftian preoocupation with "workers co-ops" and all this nonsense is being used to single out companies simply because they exist in a mixed economy--like we all do'.

But this is more "sounds like" stuff, in the face of being told that the objection is more than a mere matter of taste, and relates specifically to the whole state intervention thing, which shows up inherently in corporations and for which big business is a marker (though, of course, big business isn't inherently a problem - we just have grounds for suspicion wherever it turns up, in a system in which size is the reward of intervention).

Meanwhile, Adam Ricketson wonders "But many people continue to invest money in corporations, so the service to shareholders probably has some basis in reality".

Yes, it has - but they too have constrained alternatives. For instance, in Australia, lots of people are shareholders at one remove through compulsory pension fund membership.

'As for the big vs. small issue, this seems to be an issue for economists more than philosophers (assuming that it is possible to clearly define "big/small" firms and "free/unfree" economies. What does the data say?)...though real people, including activists and legislators, need to work with what they have available.'

Well, elsewhere I have brought out the historical pattern of the Industrial Revolution: few corporations, and those special cases like railway companies, with most firms quite small.

December 11, 2008 3:44 AM  
Blogger Stephan Kinsella said...

P.M.Lawrence:

"Stephan Kinsella quoted me, "Companies are corporations", then wrote "Oh? There are many types of firms--sole proprietorships, partnerships, JVs, PCs, corporations, etc."

"I am beginning to suspect a language barrier here, though it seems unlikely. This simply does not make sense, unless he uses company and firm interchangeably (but he doesn't, e.g. in his remark "It seems to me that... all this nonsense is being used to single out companies simply because they exist in a mixed economy"; if he only means firm when he says company, everything in the universe of discourse is a company and there is nothing to single out)."

I am using "company" to mean "firm", "business entity" etc. It is the leftarchists who are unclear in what they are opposed to--is it the corporate form itself (whether big or small) or is it bigness (whether corporate or not).

"companies are corporations, by definition. Firms in general are not companies."

Fine--this is just semantics. To us yanks it informally means "business" or "firm".

"'It's almost as if you guys are not against the state, but are against "corporations". I'm a libertarian--we oppose institutionalized aggression (and private aggression too), and thus oppose the state. Not, um, the form of organization some private companies choose.'

"Beep! Either more language barrier, or begging the question. But that is not about "the form of organization some private [firms] choose"; quite simply, for the reasons given above, no private firm ever can become or continue as a corporation without state intervention throughout. It is not truly a distinct entity in its own right as the legal fiction has it, though, but it is an emanation of the state (that's a technical term). So it's not taking my eye off the ball."

We libertarians are not in favor of the state granting corporate status, nor of (private, free market) corporations having separate legal personality or entity status (again, see Hessen on this, pp. 19-21). (BTW I assume you would be for removing all corporate income tax, since it is based on the entity fiction? This is yet another way the state *harms* corporations.)

December 11, 2008 12:46 PM  
Anonymous P.M.Lawrence said...

Stephan Kinsella wrote 'I am using "company" to mean "firm", "business entity" etc.'.

That is demonstrably untrue, unless he is jinking about and changing what he means from one place to another. His remark "It seems to me that... all this nonsense is being used to single out companies simply because they exist in a mixed economy" proves it.

Let me spell it out. If "company" means "firm", "business entity" etc., then it is not possible to single out companies, because those are all there is. So Stephan Kinsella is not using "company" to mean "firm", "business entity" etc.

"BTW I assume you would be for removing all corporate income tax, since it is based on the entity fiction? This is yet another way the state *harms* corporations" is disingenuous; by itself, it would make things worse - by itself. Over and over, we have pointed out that selectively removing some burdens while leaving others can make things worse, even if all burdens should be removed. It's like scraping barnacles off one side of a ship; not only would the ship not speed up much, the side that still had barnacles would start going back, and because the ship would go in circles it would make less headway overall.

This is true of a wide range of distorted situations; if you have 10 uncorrelated distortions, the distance from optimality will be proportional to the 10, but if you remove 5 of them that are all correlated one way, the remaining 5 will all be correlated the other way and the distance from optimality will be proportional to 5 squared, i.e. 25. The actual suboptimality will be proportional to the square root of that, but of course gains and losses to individuals within that aggregate will be proportional to the distance from optimality - there will be serious gainers and losers, from a smaller aggregate loss.

What is more, Kevin Carson has already pointed out that corporate income tax tends to make resources stay inside corporations rather than trickling down to natural persons. This strengthens those artificial entities over natural persons.

December 11, 2008 4:06 PM  
Anonymous P.M.Lawrence said...

And here is another Huebert/Block response to Roderick Long, arbitrarily denying his plain words that he is describing corporations and doing a bait and switch, asserting that he is describing big business, then equally arbitrarily asserting that the same privileges are just as beneficial to all.

Looking back on my last cooment, I see that I didn't give a clear answer about my position on corporate tax. I can see Kevin Carson's point about getting rid of it, but with Australia's franked dividend approach I think it would be a low priority to get rid of it here. That is, I think it should be eliminated at about the same time as personal income tax, which I feel should be phased out by turning it into a SAYE scheme from which people could draw down amounts above a cap. That cap would fall to zero at an ever reducing cut off age matched to an ever increasing age benefit entitlement age (here, those are paid from consolidated revenue). The best way of transitioning from corporate tax probably involves compounding it for issues of shares to an endowment fund, which should be decentralised from the state to charitable services as rapidly as possible. At or after that time, corporations themselves should be restructured as partnerships, with bearer shares to convert former shareholders into de facto limited liability sleeping or silent partners (unless and until they came out to vote or something), and with the managers the active unlimited liability partners (with a debt to pay off to buy themselves in, and novated on retirement to cut their liability after that). Then let firms shake out as events dictate.

December 12, 2008 4:10 PM  
Blogger Stephan Kinsella said...

PM Lawrence:
""BTW I assume you would be for removing all corporate income tax, since it is based on the entity fiction? This is yet another way the state *harms* corporations" is disingenuous; by itself, it would make things worse - by itself."

Glad to know you are for the state imposing the corporate income tax and for the double-taxation of shareholders it implies. IF you hate shareholders, might as well want them punished, eh?

December 13, 2008 7:46 AM  
Blogger Kevin Carson said...

Stephan: I can understand your disagreeing with P.M. Lawrence on the corporate income tax.

What I can't understand is your making such misleading use of material from a comment thread, elevating it to a post in its own right in a venue where commenting is not allowed.

The title of your post ("Left-Libertarians: Pro-Corporate Tax") is utterly misleading, and somehow I suspect you're not entirely oblivious to that fact. Your title suggests that PML displays some sort of hypocrisy as a "left-libertarian," or inadvertently gives away some sort of esoteric doctrine that's supposed to be kept safely hidden away by us adepts. In fact PML has never claimed to be a left-libertarian, left-Rothbardian, or mutualist--or anything else but a person with an economics background and MBA who has wide-ranging historical interests. He is guilty of absolutely no hypocrisy or inconsistency with his stated principles.

Furthermore, I explicitly stated in the same thread (a remark which PML quoted in the remarks you excerpted) that I considered the main effect of the corporate income tax to be the concentration of capital among a small number of large corporations, and that I favored its immediate abolition or (as second-best expedient) the closing of all corporate tax loopholes and lowering the overall rate enough to be revenue-neutral. So it should be clear, despite your misleading title, that PML's statement is not some sort of defining doctrinal statement for left-libertarianism.

Your grasping at such material for continued sniping in a venue where readers are not allowed to talk back suggests you're running out of ammo.

December 13, 2008 10:39 AM  
Blogger Stephan Kinsella said...

Kevin: "Stephan: I can understand your disagreeing with P.M. Lawrence on the corporate income tax.

What I can't understand is your making such misleading use of material from a comment thread, elevating it to a post in its own right in a venue where commenting is not allowed."

why is it misleading? I don't say all left-libertarians think this. This guy is an illustration of what some left-libertarian think. I don't see what is wrong with quoting him. I link to it, and anyone there can click thru and see for themselves. I am utterly baffled by your criticism here. I did nothing wrong -- I merely called attention to the views of a (presumably) left-libertarian that I believe are unlibertarian.

"The title of your post ("Left-Libertarians: Pro-Corporate Tax") is utterly misleading,"

"Utterly"--? even though I link to the original comment? How much detail needs to be in a title?

"Your title suggests that PML displays some sort of hypocrisy as a "left-libertarian," or inadvertently gives away some sort of esoteric doctrine that's supposed to be kept safely hidden away by us adepts."

No--my title suggests that some left-libertarians are so taken by fallacious leftist reasoning that it leads them to error in their libertarian views.

" In fact PML has never claimed to be a left-libertarian,"

Fair point. I did assume he was a left-lib. If he denies it I'll post a clarification.

"He is guilty of absolutely no hypocrisy or inconsistency with his stated principles."

Well he is guilty of advocating theft, which is bad enough.

"Furthermore, I explicitly stated in the same thread (a remark which PML quoted in the remarks you excerpted) that I considered the main effect of the corporate income tax to be the concentration of capital among a small number of large corporations, and that I favored its immediate abolition or (as second-best expedient) the closing of all corporate tax loopholes and lowering the overall rate enough to be revenue-neutral."

Right, and I did not accuse you of this. And thankfully, I linked ot the piece, so people can see that.

" So it should be clear, despite your misleading title, that PML's statement is not some sort of defining doctrinal statement for left-libertarianism."

Glad to hear it.

December 13, 2008 11:35 AM  
Blogger Kevin Carson said...

And I'm glad to know that you're willing to print a retraction, and glad as well that you include a link. That way, anyone who's willing to bother clicking through 17 email chains can find out for themselves just how misleading the title "Left-Libertarians: Pro-Corporate Tax" really is.

December 13, 2008 12:03 PM  
Blogger Stephan Kinsella said...

Oh--well played, Kevin. Well. Played. Touché, my leftist comrade.

December 13, 2008 4:48 PM  
Anonymous Robert Paul said...

"I don't say all left-libertarians think this."

The title of your post is "Left-Libertarians: Pro-Corporate Tax", so it sure sounds like it.

Even if PML were a left-libertarian, that obviously does not necessarily mean all left-libertarians are pro-corporate tax. And PML himself takes a more nuanced position than simply "pro-corporate tax".


Kinsella, you are reaching new lows with this kind of intellectual dishonesty. You know full well that more people will see your attention-grabbing title than will actually click through and see that you were misleading them.

This is really disappointing. We already have to deal with this kind of nonsense from statists all the time. I tend to agree that Kinsella is getting desperate.

December 13, 2008 8:40 PM  
Blogger Kevin Carson said...

Stephan: Heh. Sorry, I couldn't resist. And thanks for the clarifying post.

December 13, 2008 11:48 PM  
Anonymous Ellen Young said...

Hi Kevin,

As I was reading this, it jogged from my memory the small item I'd noticed in some reading a year or so ago, that 150 years ago a town the size of mine (about 10,000) would have had hundreds of little businesses all made up of one or a handful of people: seamstresses, spinners, wheelmakers, midwives, doctors, cheesemakers, inns, candlemakers, cartmakers, metalworkers, winemakers, beermakers, importers, traders of other types, ferriers, sawyers, millers, threshers, printers, and I can't remember what else, my impression being there was no business license required to do all this. And I'm thinking if you counted farms, it was likely that the number of businesses must have pretty much matched the number of families. I'm not a scholor like you or some of the other people who comment, so I'm not throwing this out as an argument. I don't even remember whether I read it in history, biography, or fiction. But I thought it might be a fragment of an idea worth pursuing by somebody who is a scholar.

As always, love it when you post
Ellen

December 14, 2008 5:33 AM  
Blogger Stephan Kinsella said...

I even softened the title a bit. Kumbaya.

December 14, 2008 9:20 AM  
Blogger Kevin Carson said...

Thanks again, Stephan.

Ellen Young: Thanks for the kind comment. A lot of writers have remarked on just how beneficial the kind of local economy you describe is, in insulating both individuals and the community from the harsher side of the business cycle in the economy at large. There are also studies showing that communities with numerous small, locally owned businesses tend to be healthier socially and economically than those with a few large, outside-owned employers. Money tends to recirculate many more times locally before leaking into the outside economy, and civil society thrives as well.

December 14, 2008 10:56 AM  
Anonymous Robert Paul said...

I must give credit to Stephan Kinsella for changing the title of the LRC blog post. The content of the post is still quite slanted but the biggest issue has been alleviated.

December 14, 2008 3:25 PM  
Anonymous P.M.Lawrence said...

I think it's worth slapping down Stephen Kinsella's "Glad to know you are for the state imposing the corporate income tax and for the double-taxation of shareholders it implies" right here, in the thread where he wrote it.

Look at what I wrote here and here. You cannot get "Glad to know you are for the state imposing the corporate income tax" from my "I think it should be eliminated at about the same time as personal income tax" and you cannot get "the double-taxation of shareholders it implies" from my 'under the Australian tax system dividends are generally "franked" under an "imputation" approach, meaning the prepaid tax can be deducted from personal income tax to avoid double taxation' without completely inverting what I came right out and told people.

December 15, 2008 3:39 AM  
Blogger Stephan Kinsella said...

I apparently had a typo in Lawrence's name that put him into a snit. Fixed. Sheesh.

December 15, 2008 12:09 PM  
Blogger Stephan Kinsella said...

PML: "Look at what I wrote here and here. You cannot get "Glad to know you are for the state imposing the corporate income tax" from my "I think it should be eliminated at about the same time as personal income tax" and you cannot get "the double-taxation of shareholders it implies" from my 'under the Australian tax system dividends are generally "franked" under an "imputation" approach, meaning the prepaid tax can be deducted from personal income tax to avoid double taxation' without completely inverting what I came right out and told people."

Well, you had written that: "by itself, it ["removing all corporate income tax"] would make things worse - by itself. Over and over, we have pointed out that selectively removing some burdens while leaving others can make things worse, even if all burdens should be removed."

I took this as endorsing the corporate income tax. Call me crazy.

December 15, 2008 1:35 PM  
Anonymous P.M.Lawrence said...

I wouldn't have called you crazy, just one-eyed the way you were so selective. "I apparently had a typo in Lawrence's name that put him into a snit" is wrong, it's the evidence it gives that you don't check things, from surviving several passes of editing. Now you've only changed this one thing from being told about this one thing, the probability is high that you still haven't done a thorough check.

December 15, 2008 2:50 PM  
OpenID neverfox said...

My manual Trackback:
http://insteadofablog.wordpress.com/2008/12/19/vaguely-defined-property-rights-indeed/

December 18, 2008 7:13 PM  
Blogger Jeremy said...

Stephan: I wrote a blog post over a year ago in which I said corporations should not pay taxes themselves - only shareholders should pay taxes.

December 18, 2008 8:12 PM  
Anonymous P.M.Lawrence said...

Jeremy, here in Australia the double taxation is removed in a different way, one that still has high compliance costs, by allowing individuals to offset the corporation tax against personal income tax. (In general, Australian compliance costs are higher than elsewhere, partly from the political culture making them more complicated anyway and partly from it habitually changing the rules frequently and often retrospectively.)

One problem with the reasoning in your blog is that dividends do not simply flow to individuals. They often go in a chain, even round in circles, ending up in pension funds or holding companies or whatever that either keep rolling everything over so you never get anything from it or apply the revenues to someone else's idea of what is good for you (in Britain, there have been cases of people with terminal illnesses approaching a cut-off age committing suicide so at least their families would get something, rather than being forced to purchase annuities that would vanish in a couple of years). The Australian approach at least targets the advantage to natural persons.

The only general way I know of reducing complexity/compliance costs is to commute/compound corporate tax for issues of shares, from which revenues would be delivered by the same compliance that dividends get anyway (transfer pricing issues translate into issues of fraud on a minority, and so on). This was quite popular a century or so ago in many countries, but it had the down side for governments that earlier governments might blow the portfolio, either dishonestly or through "investment" that turned out not to be enduring or not to boost other revenues even if it did endure (like building schools and hospitals). It had the down side for corporations and their investors that governments might claim that they were getting nothing from the corporations and either nationalise or tax all over again, without regard for past value transferred (this happened to the Suez Canal Company under Nasser). So corporations now prefer having a fully visible tax obligation to buying it off. But it does have an up side for people in a country (compared to corporate tax, not to not having corporations): offshoring can't take revenues out of the country from one tax base to another, so at least any trickle down stays.

December 19, 2008 4:05 PM  
Anonymous Gary said...

I found this old post on a search for Bryan Caplan. I don't know if these old posts get bumped by new comments, but here goes one:

"Gangs of America" is written by a business owner who developed a corporation and then sold it. The book is not particularly anti-State, nor anti-corp, per se. The major point is the real history of the corporation, it's very violent beginnings as an outgrowth of guilds and mercantilism. This continues from the near refusal to create corporations by original States or Colonies operating under the Articles of Confederation.

One can see a clear distinction between the libertarian ideals of the Dec of I vs. the Corporate-Statist nature of the later Constitution.

Most importantly, what is shown is to what GREAT extent the meaning of "corporation" is bound up in Law, and of course not simple "property rights" but oblique and complex definitions, legal decisions which pervert logic, including not only "personhood" but the first decision to break the rules and permit a "holding company" to be created as a corporation in the late 1800s.

This finally permitted a corporation to become owned by another corporation, and for corporations to escape "place", much like those Star Trek teleporters, or those subatomic particles that merely have a tendency to exist discretely.

All these complex legal rules collectively amount to what one might call the "virtualization" of private property and pp rights, a power that ordinary humans do not possess.

I'm probably using very imprecise language where greater technical precision may exist, but what I'm referring to is a situation where said 'properties' or 'natures' of a given corporation (or corps in general) has become ghost-like, and can variably exist or not exist, exist in one legal jurisdiction then instantly cease to exist and re-emerge in another legal jurisdiction, to legally claim it's "civil rights" are being violated by human "stakeholders", yet legally claim immunity from personal and civic responsibilities that are part-and-parcel of human nature and character.

For one example, humans are judged strictly for killing, usually determined to be "murder", and slapped with harsh penalties for violence. Corporations can and do kill due to negligence, sometimes pre-planned negligence, yet NO PERSON is responsible, because responsibility is both diffused and owners are 'immunized'.

In this sense, corporations (and size does matter, obviously, because bigger ones often have much more leverage and latitude to act) are not MERE persons, but more like super-persons endowed (by govt) with magical powers, like that Stretchy guy in Fantastic Four, or Harry Potter (doesn't he have some cloak of invisibility), or some char in World of Warcraft that has the ability to morph, hide, and grab power tokens.

If my post is too much bullshit analogies, then READ the above book instead. He's a much better writer than I.

October 22, 2009 2:32 AM  

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