I was having a discussion with a liberal friend of mine the other day, and I was speaking about the efficiencies of the free market versus the state. I interchangeably used the terms companies, businesses and corporations. He felt that corporations were often very inefficient. But, he made it clear that he was talking about corporations and not simply just any business in a free market economy.
This started me thinking and I apologize if this topic has already been discussed to death on here before. I do not know very much about the legalities of a corporation, but it seems they function to protect the owners of a company from risk. Meaning if the company goes under, their personal assets are not at risk. This does not seem to be in line with a Mesian or Rothbardian vision of the free market. Once again, it appears that the state, through legislation, has created a moral hazard where people can take actions with severely reduced risk when compared to them operating in a purely free market.
Wolf:I do not know very much about the legalities of a corporation, but it seems they function to protect the owners of a company from risk. Meaning if the company goes under, their personal assets are not at risk. This does not seem to be in line with a Mesian or Rothbardian vision of the free market. Once again, it appears that the state, through legislation, has created a moral hazard where people can take actions with severely reduced risk when compared to them operating in a purely free market.
Rothbard's Defense of Contractual Limited Liability by Gary North
Wolf: This started me thinking and I apologize if this topic has already been discussed to death on here before. I do not know very much about the legalities of a corporation, but it seems they function to protect the owners of a company from risk. Meaning if the company goes under, their personal assets are not at risk. This does not seem to be in line with a Mesian or Rothbardian vision of the free market. Once again, it appears that the state, through legislation, has created a moral hazard where people can take actions with severely reduced risk when compared to them operating in a purely free market.
This is just unsecured credit and it is not specific to corporations. Anyone who has a credit card can also default on it and keep the assets.
The fallacies of intellectual communism, a compilation - On the nature of power
The state has spend money in order to run itself, and it thus has to be funded by capital to do so. Therefore, the state's existence itself is owed to capital.
If the sources of capital that contract with the state demand that in return, the state arbitrate their disputes in such a way, that the owners of capital don't have their own assets taken away for liabilities of business, then the state accordingly agrees to go by these rules.
In short, it's the other way round.
I'm not sure if I understand the purpose of your response. It does not seem to address any of the points in my post. Whether or not this type of moral hazard exists in other places seems to be somewhat beside the point.
Oh yeah, chartered corporations as we know them today are completely dependent on the state for the legal framework in which they operate, nay, exist as entities at all.
I'm not sure I am following you Prateek. What is "the other way around." The state is "funded" by capital in the way an art thief is "funded" by the museum he robs.
LOL@your note!
Wolf: I'm not sure if I understand the purpose of your response. It does not seem to address any of the points in my post. Whether or not this type of moral hazard exists in other places seems to be somewhat beside the point.
It's not true that it is a moral hazard in the first place.
Wolf: LOL@your note!
Just ignore him. Here is one piece that might help you.
Democracy means the opportunity to be everyone's slave.—Karl Kraus.
E. R. Olovetto:Just ignore him.
Why ignore me? Corporations are just legal shelters for the individuals behind them. They would not exist without a state. There would be no need for them.
Stranger: Wolf: I'm not sure if I understand the purpose of your response. It does not seem to address any of the points in my post. Whether or not this type of moral hazard exists in other places seems to be somewhat beside the point. It's not true that it is a moral hazard in the first place.
Like Stranger said, unsecured credit is not a moral hazard by nature. However, protection granted by the state would be since it is provided and funded at the expense of taxpayers.
they said we would have an unfair fun advantage
Jackson LaRose: E. R. Olovetto:Just ignore him. Why ignore me? Corporations are just legal shelters for the individuals behind them. They would not exist without a state. There would be no need for them.
Why Jacko? Well, I don't care about your unfounded assertions and don't think anyone else should either. The answer to why you are wrong is in the paper I linked. Please do better than earlier today when you said, "Ew! I didn't read it because [inaccurate strawman]."
I apologize if the proper quoted text I am replying to is not showing up. I'm a bit of a noob here, hope I'm not confusing in my responses.
I think I understand the comparison. If I am correct, what you are saying is that the risk in a corporation is born by whoever is supplying the capital. And if someone is willing to supply the capital in this setting then they are supplying unsecured credit. Unsecured credit isn't a moral hazard, it is just a large risk taken by the lender.
Welcome to our friendly, calm, non-confrontational forum.
Freedom of markets is positively correlated with the degree of evolution in any society...
Wolf:And if someone is willing to supply the capital in this setting then they are supplying unsecured credit
The only problem is that the State is intervening in these "settings" that you are referring to. What happens in the case that debtors cannot repay their lenders should be determined ahead of time by the mutually agreed terms of the contract and not by the State.