Comments on Mutualist Blog: Free Market Anti-Capitalism: Corporate Personhood

I know this is a couple years late, but after read...

2009-08-21T18:49:21.989-07:00

I know this is a couple years late, but after reading this discussion and the one by Kinsella about Gabb's thoughts on limited liability, it struck me that I had a very hard time reconciling basically anything Kinsella has to say about tort with reality. Every post of his I read made my brain hurt, not for lack of understanding but out of a sense of "where the hell do you come up with this stuff?"

Not until reading this final comment by Anonymous did my problem with Kinsella's thought coalesce into something coherent.

Suffice it to say, anonymous has succinctly articulated my extremely hostile gut reaction to Kinsella's reasoning, before it had formed itself into cogent thought.

Bravo.

It is bizarre that there is this notion that owner...

2007-06-28T09:41:00.000-07:00

It is bizarre that there is this notion that owners of property are automatically liable for crimes done with their property...

It is telling that you say crime not tort. I think you are conflating the two. Specifically, you seem to think that torts are (or should be?) tied very closely to moral blameworthiness. For how otherwise could you relieve the property owner who directs the agent to undertake risky activities from liability. I take it for granted we are not taking about what thieves do with stolen property. We are talking of the run of the mill sitution in which teh employer directs teh employee to take risks of a greater or lesser degree. In my replay, I want to first clarify the law of respondeat superior which your statement contradicts; second, I want to explore this interseting notion that torts are (or should be) very closely tied to moral blameworthiness, to wit, I will show that tort liablity is not closely tied to moral blameworthiness; finally, I will offer a brief justification for the current state of tort law.

You seem to reject the common law doctrine of respondeat superior altogether wholly apart from its application or rather non-application to limited liability scenario:
"If the FedEx truckdriver negligently runs over you, is the shareholder responsible? Well, why would he be responsible in the first place?"

According to the doctrine of respondeat superior a master is liable for the torts of the servant when that servant is acting in the scope of the agency/employment. therefore, the master's liability would turn on whether the truckdriver was negligently driving while delivering packages, i.e. while in the scope of his employment.

one court rationalized the rule like this: agency liablity "attempts to link risks to benefits and hold accountable for risk-creating activities the enterprise that stands to benefit from those activities." lange v. national biscuit company

The key here is risk. Those risks are costs of doing businss, of generating revenue, of reaping benefits. It can safely be assumed that everyone is negligent sometimes even oftentimes. It just so happens it doesn't result (fortunately) in harm.

civil law or tort law does not punish people (that's criminal law), it only requires the tortfeasor to make the injured party whole. So, a tortfeasor could only be just a little bit negligent (but negligent nonetheless) but unlucky for him his tort victim has an egg-shell skull. He is liable for the full extent of the damages. On the other hand, someone might be acting very negligently (less than gross or reckless) and lucky him it only causes very minimal harm to the tort victim. He is liable only for the damage done. So there is not a one to one realtionship btw blameworthiness and liability. So when we say someone is negligent we are not attaching a stigma to that person (that would be punishment), rather we are sayign you're human, you messed up, but you're going to have to pay for the damage.

the point is an employer should not be able to shift all the risks away from himself and yet reap all the rewards of an activity. Or so I would argue. So lets say that we're talking about a dangerous activity, like powerful machinary. Now we're talking about large machinary, so the potential for harm is very great. A little negligence with powerful machinary can cause a lot of harm. This greater potential for harm can be seperated from the negligence as a risk all by itself. Because if the employee is just a little bit negligent that causes serious injury, there is liable for all the damages. This is greater risk of the magnitude of harm is completely tied up with the employer's business. It is a risk of doing business. This is all employer.

Now what you seem to be suggesting is that notwithstanding that the employer has created the risk of the magnitude of harm for her own benefits, she should be relieved of any of the liability if he has enough forsight to hire someone else to undertake the risky activity.

Only by strictly tying tort liability to moral blameworthiness could you agree to such a proposition. And, it follows, you would limit damages awards to the amount blameworthiness, an imprecise measure indeed.So what you seem to be saying is that peope should not be liable for the risks they take. Unless I suppose, you might argue, they take unreasonable risks. Well, that opens up a whole can of worms in itself. But if you are doing something useful (or you might prefer profitable) then you should be able to take any and all risks whatsoever, and as long as you were not negligent, in the sense of being morally blameworthy in some way, you're totally off the hook?

Your position, in other words, rejects strict liability completely. The law, and I think this was true of the common law, says that anyone that engages in "ultrahazardous activities" should be strictly liable for any harm they cause. This means you could be as careful as humanly possible and you are still liable for the harm you cause.

Needless to say, your position would encourage risk-taking. For I'm only on the hoof for the combo of negligence with my risks. If I over-exaggerate my own non-nelgigence. Whether I pay someone to take the risk or take the risk myself, the result is the same. This is to say nothing of the axiom that you a person should be liable for the risks they take.

I just came across this thread. I am very impresse...

2006-09-20T11:48:00.000-07:00

I just came across this thread. I am very impressed at iceberg--very very sound and sober. I'm not surprised others keep missing the point, except for Sheldon... I cannot understand this bizarre condemnation of corporations. I think iceberg handled all the isuses well. It is bizarre that there is this notion that owners of property are automatically liable for crimes done with their property... Moreover, property just means the right to control. This right to control can be divided in varied and complex ways. If you think shareholders are "owners" of corporate property just like they own their homes or cars--well, just buy a share of Exxon stock and try to walk into the boardroom without permission. Clearly, the complex contractual arrangements divide control in various ways: the managers, etc., really have direct control; subject to oversight by the directors... etc. But even here--to get a loan, the company has to agree to various covenants w/ the bank, that condition its right to use property. Even though the law would not call the bank an "owner" praxeologically it of course has a partial right to control the property. If you have a contract allowing rentacops to patrol the building--hey, they are partial owners too. If you are leasing from a landlord--so do they. If you allow the plumber in to fix the building--he has temporary right of control too. So what?

The point is if you can make a case that a given p...

2006-09-06T06:19:00.000-07:00

The point is if you can make a case that a given person other than the one directly responsible (the truck driver) is causally, jointly liable, fine--then under libertarian principles this person is also liable.

Novartis is currently doing R&D on xenotransplantataion or organ harvesting. Without getting into too much more detail, scientists around the world are concerned that xenotransplantation could create something equivalent to AID's. Suppose shareholders invest in the Novartis subsidiary that sells harvested organs. Suppose the AID's-like virus is created. Should the shareholders have full liability? If not the shareholders then who? The scientists? Who paid the scientists? The manager's? Who paid the manager's? Can't you see that it is precisely this confusion and shifting of responsibility that makes corporations appealing. Under limited liability principles the Xenotransplantation invester has little incentive not to invest, absent the possible governmnet regulation. The probabilities of this AID-like virus is very low, the harm incredibly high, and the possible profits incredibly high. The corporate invester's stands to gain all the benefits of her risks, and bear very few of the costs.

After reading P.M. Lawrence's analysis of the matt...

2006-05-16T11:20:00.000-07:00

After reading P.M. Lawrence's analysis of the matter (very insightful, thank you) I think the fulcrum of the back and forth lies here in Carson's words:

But the existence of a separate corporate identity, at least, would probably require some sort of social consensus, recognized and enforced under a libertarian law code.

That last part about the libertarian law code - as opposed to the current code where artificial entities can be created by fiat (this undeniably does occur even if other, natural factors are in play) - is key. If these entities arise as natural phenomena, then fine. But then they are not fictional persons because they are not artificial (in the sense Lawrence means). And somebody has a lot of explaining to do on the whole conspiracy of Santa Clara vs. Union Pacific Railroad.

Personally, I'm much more interested in the praxeological implications of having different "kinds" of persons. I think this cuts to the core of the debate. What the natural market relations will be is inextricably determined by the nature of humans. If other artificial natures are injected into it, the rules must somehow change. The evidence suggests the purposefulness of action did change in some key way. For that reason, we should be extremely careful about how we define our persons - much more careful than simply assuming contracts are some sort of "metaperson".

P.M. Lawrence,"The issue of "time poor" shareholde...

2006-05-05T06:19:00.000-07:00

P.M. Lawrence,

"The issue of "time poor" shareholders is the obverse of a world in which people are unable to work except for employers because resources are routed through them. "

The "time poor" reason may or may not be a valid explanation for why corporations might be formed in the free market, but it was never intended to be the sole justification. I happen to like your reason stated that it's a quick method of assembling capital, a lot better than my own.

Sorry for the delay posting - I had to chase up so...

2006-05-05T05:15:00.000-07:00

Sorry for the delay posting - I had to chase up some references as well as get the time for a full reply.

KC, I've told you before that there is no such thing as "a commons". What happened was that each common (singular) was not owned at all, let alone collectively or communally, but that each commoner had individual property rights over certain privileges in regard to the common. These were not transferrable, and so to the wiki editors they don't count as property (I've tried to correct this misunderstanding a number of times, but they insist on reinstating this today-centric perspective and ruling out other forms of property). Considering the common itself as property is the first step to making it transferrable and then alienating it.

A priori, a group only has the rights of its component individuals, but certain groups are more than that. They may (say) have a religious or cultural connection. In this case they have rights that are expressed by their members but those members in turn don't get them from themselves as individuals but rather - freely - give expression to the ideas that the groups represent.

See, for instance, the part in the Screwtape Letters where the elder devil describes how the Church Militant looks to him and how mere mortals don't see all of it. Or, in particular, look at monasteries and such - or towns (with "mayor and corporation") or even countries. Under Byzantine Law, such entities were considered "moral persons", in contrast to "natural persons" - and not all of our corporations, "legal persons", would have counted. Of course, that doesn't translate into these moral persons having claims over natural persons any more than one natural person does over another.

One thing to notice is that moral persons are not inherently state creations; consider how many monasteries were founded in the Dark Ages with no states around (even if some claimed authority). It's just that, with states coming in, it was more convenient to use their legal structures.

I have used examples like these to show ultra-Georgists the flaw in their argument that states have a right to tax corporations (including monasteries) "because" states created them; they point to state legal structures and claim that these show that the state created them and retains rights to tax, while I point out that often the corporations existed before their particular state, and sometimes even before any state - i.e., the state simply muscled in and pushed them into its own framework.

But it's pretty obvious that moral persons are the emanation of ideas given expression, resulting from "networks of contracts among individuals". On the other hand, unless the underlying ideas and concepts - a monastery, a football club or whatever - are somehow compelling enough to bring and keep people together, they are only artificial and sustained from outside, mere legal persons.

Some of the usage confuses ordinary use of "fictitious" with what lawyers use it for as a technical term. "Fictitious", in law, doesn't mean false or unreal but rather made up and constructed, an artificiality that is real enough in its abstract way.

The issue of "time poor" shareholders is the obverse of a world in which people are unable to work except for employers because resources are routed through them. In this case, people cannot apply their own capital resources under their own direct control since they have to devote so much of their effort and time to working in that very system. The system itself provides the time poverty.

Where corporations do gain is in two ways. One is assembling large amounts of capital fast enough to get in business ahead of the competition, rather than accumulating it more slowly (not necessary if there are rich individuals who can act as partners - as Rolls was to Royce - or where there is family money already accumulated over generations). The other is in economies of scale - but corporations aren't the only framework for that. Only, today's system has crowded out those other, more natural ways.

Here are some materials showing how capital markets were once arranged, i.e. how people concentrated it. I first came across this some time back by googling for some technical terms I knew, like "antichretic" and "vivgage" (contrasting those with mortgages will also bring out some of the issues of what corporations do these days, in contrast to natural persons). I was particularly struck by how diversifying holdings of annuities reduced risk and increased leverage in preventing repudiation - it works outside the formal framework.

For what it's worth, I believe that many advantages of corporate status can be obtained by individuals partnering with moral persons who exist anyway, for instance a local municipality. Then the former would be a sleeping partner doing fleet leasing of equipment, usually of a non-trade-specific nature so it can be repossessed and reused elsewhere if need be. That would mean that individuals need only provide expertise, effort and specific capital (including perhaps working capital in conjunction with non-working partners), and the local "state substitute" would not be gaining revenue merely from tax-like behaviour like leasing its own lands but also increasing the revenue base it drew on.

Lady Aster,I'm probably missing something, but my ...

2006-04-27T21:19:00.000-07:00

Lady Aster,

I'm probably missing something, but my casual impression has been that there's a hidden collectivism in Ayn Rand's ethics. Her ethics seems to be based on what promotes the rational self-interest of human beings ("Man") as a group, and rather than the rational self-interest of the individual human being (which can be entirely different). It might be in the interests of "Man" that nobody steal, but very much in the interests of an individual. Sounds almost like she relies on some sort of (gasp) implied categorical imperative.

Now, it might be possible to argue from something like Stirnerite self-interest to something like Tucker's "law of equal liberty"--that it's in the long-term rational self-interest of an individual to treat others as equals. But that's not very Aristotelian, is it?

Anonymous,

You're sort of begging the question, aren't you--assuming, without having demonstrated, that corporations CAN exist in a free market.

Not wanting to disappoint you, but before I read Sheldon's arguments and followed his link to Van Eeghen, I leaned more or less toward Hessen's position myself. I still don't take a dogmantic position either way, but it seems to me after reading the arguments above that it would be very difficult to create an owning entity, separate from the stockholders, through purely private contract.

The exchanges between Sheldon, Josh and iceberg raise a lot more technical questions than I can possibly resolve for myself without a lot more study. But the existence of a separate corporate identity, at least, would probably require some sort of social consensus, recognized and enforced under a libertarian law code. I don't have any problem in principle with this, if it can be done on the basis of local consensus without the initiation of force. Some sort of entity might be implied in community ownership of a commons, for example. But whether the advantages of such entity status would be worth the transaction costs of negotiation recognition of corporate identity in a variety of local venues, in a society based on bottom-up federation of voluntary communities, is a different question. I suspect the transaction costs of establishing such an identity over a wide geographical area would be prohibitive in most cases, without a central state authorized to extend recognition.

* Limited Liability is not at all absolute, as man...

2006-04-27T04:36:00.000-07:00

* Limited Liability is not at all absolute, as many libertarian detractors seem to imply. In cases of fraud, or where the corporate does not have sufficient independence from its shareholders, courts will "pierce the veil". When courts pierce the veil, plaintiffs against a corporation can indeed hold the shareholders directly liable. This often happens when the corporation is undercapitalised, that is, when the corporation obviously doesn't have enough assets to cover its liabilities. This happens surprisingly frequently, and more often in torts cases than contracts cases.

True. But fraud usually needs to be found and it's left to the discretion of a judge.

* I'm not sure what part of libertarian theory compels a unity of ownership and control. Libertarian theory allows interest, for example, which is profit without control.

Libertarian theory compels responsibility for one's property. An owner is certainly free to hire an agent to manage his property, but control and responsibility remain with the owner, except for in a corporation, where an artificial person becomes the owner of record.

* It's flatly wrong to say that shareholders do not suffer when corporations fail or are successfully sued. Shareholders see a loss in the value of their assets. They lose their dividends, if they were receiving any. Looking at the interest analogy, if the venture you lend to ends up failing, you the creditor suffer.

Whoever held otherwise? But loss does not come from liability, it comes from entrepreneurial risk. As Frank van Dun points out, "limited liability" is really a misnoner. There is no shareholder liability at all. There is only investor risk.

Some various points:* Limited Liability is not at ...

2006-04-26T14:53:00.000-07:00

Some various points:

* Limited Liability is not at all absolute, as many libertarian detractors seem to imply. In cases of fraud, or where the corporate does not have sufficient independence from its shareholders, courts will "pierce the veil". When courts pierce the veil, plaintiffs against a corporation can indeed hold the shareholders directly liable. This often happens when the corporation is undercapitalised, that is, when the corporation obviously doesn't have enough assets to cover its liabilities. This happens surprisingly frequently, and more often in torts cases than contracts cases.

* I'm not sure what part of libertarian theory compels a unity of ownership and control. Libertarian theory allows interest, for example, which is profit without control.

* It's flatly wrong to say that shareholders do not suffer when corporations fail or are successfully sued. Shareholders see a loss in the value of their assets. They lose their dividends, if they were receiving any. Looking at the interest analogy, if the venture you lend to ends up failing, you the creditor suffer.

- Josh

I'd just like to mention one other idea about corp...

2006-04-26T13:44:00.000-07:00

I'd just like to mention one other idea about corporate personhood I read somewhere. The basic point was that for much of human history, humans had sought to make property out of people (slavery). And it is quite funny that just as slavery was coming to a close in the mid-19th century, the 14th amendment - meant to give former slaves equal rights - was instead appropriated by elites to turn property into a person.

I don't mean for that to be an exhaustive analysis of the situation, but it resonates with me intuitively what is going on there. Iceberg seems to be saying the same thing we are: don't put limits on human association, but withdraw the doctrine that property can be treated as a person.

However, Brad DeLong had an interesting post on corporate governance at Pfizer. It's interesting to see how the politics of a corporation tend to mimic those of a state. This problem of agents running roughshod over the entitlements of principles is not going to go away when they're no longer propped up by the state, I should think.

To say we know with great certainty is a bit too p...

2006-04-26T13:34:00.000-07:00

To say we know with great certainty is a bit too pretentious for my comfort in many scenarios.

I can live with that, Iceberg. Clearly we need to reform the system, not the individual corporations.

Iceberg: Agreed.

2006-04-26T11:43:00.000-07:00

Iceberg: Agreed.

Sheldon,I have no disagreement here, other than I ...

2006-04-26T07:01:00.000-07:00

Sheldon,

I have no disagreement here, other than I would think that under anarchy people would be free to form voluntary arrangements, for example to live communally under socialist principles.

Such society would allow people to suffer the illusion of having a distinct personhood for fictional entities, something that some might say we have that today with the concept of god as expressed by religion.

Of course such illusions will be strictly subjective to that group, and any other individual or group dealing with the corporation would deal with it's owners or management under the libertarian condition of determining causation.

Libertarian defenders of the corporation have typi...

2006-04-26T06:14:00.000-07:00

Libertarian defenders of the corporation have typically defended the corporation as we know it today. What you may be describing is not a corporation (with entity status) as it has historically existed but a partnership or joint-stock company. This is quite different.

Sheldon,I dont know why you insist on conflating s...

2006-04-26T04:16:00.000-07:00

Sheldon,

I dont know why you insist on conflating state capitalism's form of corporation, and it's convenient legal fictions, with a free market version which is based on libertarian principles, in which the only recognized form of ownership is clearly vested in the shareholders, and not some fictitious entity.

A corporation under libertarian law would be recognized as a relationship where persons are under the acting orders of the ownership to steward some property, and under which any tort liability would have to be aimed strictly at the parties involved in causing the damages.

Mere ownership of the property does not necessarily include the owner as part of the cause-- to accept otherwise would be a knee-jerk response by someone who only recognizes the whole package deal of state-capitalism's corporatism.

Also lets not forget what the point of this entire discourse; the question of whether a corporation, or something functioning quite like it can operate strictly on free market principles. The laws that pertain to state capitalism's corporation such as entity or limited liability have no bearing, other than in the result of libertarian corporations having similar function.

Entity, or personhood is just an abstraction; a co...

2006-04-26T02:17:00.000-07:00

Entity, or personhood is just an abstraction; a convenient mental construct.

Iceberg: This is incorrect. As van Eeghen shows, the law treats the corporation like a literal person with rights. It holds title to the corporate assets. The shareholders do not. Holding shares entitles one only to a vote for the board and a claim to dividends.

As an addendum, I want to point out that the immor...

2006-04-25T18:50:00.000-07:00

As an addendum, I want to point out that the immortality question isn't an issue once we recognize the shareholders (and to whomever they sell or bequest their property) as the real owners.

We must all be thorough in distinguishing the elements of corporatism under state-capitalism which would have no bearing in the functionality of the free market variant instead of conflating the two.

Sheldon,Entity, or personhood is just an abstracti...

2006-04-25T18:15:00.000-07:00

Sheldon,

Entity, or personhood is just an abstraction; a convenient mental construct. Let not the statist baggage cloud the free market variety which could accomplish the same function. The real owners are, and have always been the shareholders.

If by definition corporation means "artificial personhood", then maybe free market supporters just have to find a better term to describe a limited liability construct based on free contracting. But otherwise I think we are just engaging in a dispute of semantics.

Jeremy,

I wholeheartedly agree with you to engage in criticism of the policy of existant state-capitalism, but I cannot always do the same when the criticisms of a particular firm are based on our hypothetical constructs of what might be otherwise in the free market. To say we know with great certainty is a bit too pretentious for my comfort in many scenarios.

Advocates of the corporation are still obliged to ...

2006-04-25T17:24:00.000-07:00

Advocates of the corporation are still obliged to explain how an artificial "person," separate from the shareholders and able to hold title to property, can arise purely through contract and without the state.

Incidentally, I think that psychology of market dy...

2006-04-25T15:28:00.000-07:00

Incidentally, I think that psychology of market dynamics is a critical reason why corporations "don't work" for me, and why some of the examples of harm to third parties (such as the fedex truck running somebody over) warrant a bit further examination than simply blaming the driver soley. We here are not concerned with finding every little rights violation possible, but in analyzing the full effects of an interventionist market.

It's funny: I don't see people witholding blame from the gov't for welfare's part in creating ghetto conditions in our cities, yet that's not a direct cause-effect relationship. It's the difference between institutional (and, dare I say, dialectical) analysis and the typical libertarian analysis based on principles alone.

BTW, thanks for reading these comments (sorry so long). I appreciate having people to talk to about this, and once again, thanks so much for addressing this, Kevin.

Why so unlikely?Because bureaucracy tends to be le...

2006-04-25T15:23:00.000-07:00

Why so unlikely?

Because bureaucracy tends to be less efficient, period (IMHO). You *can* hire people to do your work for you, but they'll never be as motivated as a single entrepeneur who does the work AND reaps the full benefits. Bureaucracies simply don't internalize the kind of psychology that is found in a fully realized market of human actors. The compulsion that is exhibited directly by the state (and indirectly by corporations) is only one more market destroying aspect - but it's not the sole one. There's an alienation factor involved... sorry, that probably betrays my current deep involvement in Studies in Mutualist Political Economy. :-)

But moreover, I was pointing at how speculative all of this predictive modelling is. We'd do better to critique actually existing corporatism and let whatever happens in the free market (should it ever arise) happen. This is part of what I was getting at in a previous post of mine, reflecting on some of Kevin's prescriptions for a mutualist economy and - more to the point - whether his advocacy for a truly free market was conditional on it taking the shape he wanted it to assume.

Just like other aspects of the division of labor that defines modern civilization, I think that the free-market corporate model could be the optimal solution for the problem of "time-poor" shareholders whom will hire and elect a management team to work the shareholder capital without the requirement of the shareholders to be actively involved in day to day management.

Sure: I just think those time-poor shareholders are at an obvious disadvantage in a market where nobody is denied access based on arbitrary agendas. And don't get me wrong: I think it's completely valid to question how pervasive the effects of state intervention are. BUT no matter what our analysis, we need to be open to whatever shape a truly free market takes. I try to couch my criticism in that spirit (not the "I H8 WALMARTZZZ" spirit).

Sheldon,No argument here -- "The point is if you c...

2006-04-25T14:00:00.000-07:00

Sheldon,

No argument here -- "The point is if you can make a case that a given person other than the one directly responsible (the truck driver) is causally, jointly liable, fine--then under libertarian principles this person is also liable."

It is not conditionary to accept all the baggage that accompanies the (extent of unlimited liability in a) state-created corporation when discussing a version compatitble with free-market ideology.

To do otherwise is to throw out the baby with the bathwater.

I am not arguing for an automatic assignment of sh...

2006-04-25T13:44:00.000-07:00

I am not arguing for an automatic assignment of shareholder liability. I am arguing against an automatic immunity from shareholder liability. Limited liability derives from the corporation's entity status. That is the tree on which the poisonous fruit grows.

Sheldon,It makes absolutely no difference whatsoev...

2006-04-25T12:11:00.000-07:00

Sheldon,

It makes absolutely no difference whatsoever regarding the ownership (or lack thereof), permission to use the property*, that was the tool/agent of the tort.

I think it's analogous to the ol' quip; "Guns don't kill people; people kill people."

I agree with Kinsella on his stance of determining causation being the main issue in regards to third-party liability.

*Of course excepting the scenario where a lender accepts responsibility for the borrowers-caused damages.