Economics Questions

Re: Corporations - constructs of the state?

JadedRailman — Thu, 25 Mar 2010 20:06:22 GMT

I don't know how mises.org looks on a bit of necromancy, but here goes...

Yes, corporations are 100% constructs of the state. This talk of limited liability is a bit of an unrelated distraction. What makes a corporation a corporation isn't limited liability (although limited liability IN ONE FORM is a knock-off effect of incorporation), but rather an artificial legal personality separate from the owners of the corporation. Common law courts established long before the Bubble Act that incorporation was not a permissible act unless done with a charter from statutory authorities. Business people responded by taking up all the aspects of incorporation they could (joint-stock ownership, limited liability, etc) and going from there. Each feature didn't work EXACTLY as it had in an incorporated form*, but they were used and accomplished, more or less, the ends they had accomplished under a corporate charter.

In a theoretical laissez faire society, there would be a general enabling law that allowed anyone to incorporate their organization for any reason, but corporations would be subject to a list of regulations governing their behavior with respect to other people (kind of like how they are today). This would force people to only incorporate when they had an extremely good reason to, because otherwise regulatory compliance costs would make their venture unprofitable.

*(for instance, since common law courts didn't usually recognize limited liability, limited liability was given to shareholders by having them be anonymous in their capacity as owner of a share -- they still received dividends and could vote at share-holder meetings, but they couldn't take anything to do with their share to court without revealing their identity and giving up limited liability)

Re: Corporations - constructs of the state?

Patrick — Sun, 14 Mar 2010 20:27:23 GMT

Esuric:

Wolf:
Any contract dispute will be settled in a government court. So, they all involve the government.

Your logic is flawed.

Good god, just forget it. My point is that what he is saying is too general. It all centers around the word "INVOLVE." It is far too vague to make his point valid. Without me clearly defining what I mean by "INVOLVE" how could you possibly say my logic is flawed! Just drop it.

The "Economic Question" that was posed in this thread was answered by the poster which I identified.

Re: Corporations - constructs of the state?

Jackson LaRose — Sun, 14 Mar 2010 08:06:57 GMT

E. R. Olovetto:
Why Jacko? Well, I don't care about your unfounded assertions and don't think anyone else should either.

LOL, watch out, Olly is like the hall monitor of the forums. All this righteous indignation, and no power to enforce it! Rather authoritarian for a Libertarian, eh?

E. R. Olovetto:
The answer to why you are wrong is in the paper I linked.

Meh, read the beginning, wasn't too "wowed".

E. R. Olovetto:
"Ew! I didn't read it because [inaccurate strawman]."

Ahem, I believe I said "Yuck", rather than "Ew".

Re: Corporations - constructs of the state?

Brainpolice — Sun, 14 Mar 2010 05:19:42 GMT

*waves pitchfork in air* Down with the corporate bolshevicks! :)

Re: Corporations - constructs of the state?

Esuric — Sat, 13 Mar 2010 08:20:45 GMT

Wolf:
Any contract dispute will be settled in a government court. So, they all involve the government.

Your logic is flawed.

Re: Corporations - constructs of the state?

Patrick — Sat, 13 Mar 2010 07:27:55 GMT

DD5:

Wolf:
I am specifically interested in the idea of limited liability that these corporations confer on the participants.

The idea is simple. If you borrow money and you cannot repay, your own personal assets (house, car, personal savings) are not at risk. The result is that the premium on risk is higher then it may otherwise have been in a free market. There are no winners here but only losers. In a free market, all such terms would be contractually settled by the parties involved before the loan.

Wolf:
Any contract dispute will be settled in a government court. So, they all involve the government.

That doesn't mean the government is involved in all contracts, but only that it can get involved. That is not the same thing.

I understand the idea of unsecured credit and limited liability, now. In fact, I have reiterated this several times in this discussion. My understanding is that it would exist even in a purely free market. Your second point is semantics. This discussion is going nowhere. Other people have answered my question.

Re: Corporations - constructs of the state?

Conza88 — Sat, 13 Mar 2010 06:42:05 GMT

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

Re: Corporations - constructs of the state?

DD5 — Sat, 13 Mar 2010 04:41:45 GMT

Wolf:
I am specifically interested in the idea of limited liability that these corporations confer on the participants.

The idea is simple. If you borrow money and you cannot repay, your own personal assets (house, car, personal savings) are not at risk. The result is that the premium on risk is higher then it may otherwise have been in a free market. There are no winners here but only losers. In a free market, all such terms would be contractually settled by the parties involved before the loan.

Wolf:
Any contract dispute will be settled in a government court. So, they all involve the government.

That doesn't mean the government is involved in all contracts, but only that it can get involved. That is not the same thing.

Re: Corporations - constructs of the state?

assimilateur — Sat, 13 Mar 2010 00:34:41 GMT

Wolf:
LOL@your note!

LOL @ a confrontational slogan that means nothing?

Re: Corporations - constructs of the state?

z1235 — Sat, 13 Mar 2010 00:09:27 GMT

Wolf:
I am specifically interested in the idea of limited liability that these corporations confer on the participants.

This has been something I've pondered, as well. In principle, I don't see why limited liability (LL) interactions would be rejected by a free market, as long as everything (equity, exposure, etc.) of every party involved is fully disclosed and accepted ahead of time.

I think it's only in combination with fractional reserve banking (FRB) that LL produces a "deadly combination" and a blatant moral hazard. In a world of (both government subsidized and LL) banks and "free" money, lenders have no incentive to be vigilant about the equity stakes and exposures of the owners of the LL enterprises to whom they lend. So what if Firm A is leveraged to the hilt with debt, and its owners have no skin in the game? If Firm A wins, both it's owners AND the bank's (lender) owners win. If Firm A fails, neither its owners, nor the bank's owners suffer. They can both turn around and establish new LL entities and give it another try. It's FRB that allows a leveraged (minimal owners' equity, LL) bank to freely lend to a (minimal owner's equity, LL) company and expose them both to a hugely asymmetrical risk/return profile.

Whoever doesn't make an effort to expose themselves to this "free lunch" -- by, at least, running a LL business -- ends up paying for it. And that's pretty much everyone else.

Re: Corporations - constructs of the state?

Patrick — Fri, 12 Mar 2010 23:33:05 GMT

DD5:

Wolf:
Maybe a more concise way to say it is that any contract in the United States involves the government.

how so?

Wolf:
It doesn't seem to make sense to single out corporations as being being bad because they involve the government.

Who is only singling out corporations? Are you referring to when people say our system is not free markets but corporatism? What is meant by corporatism is that government uses corporations to control production by means of regulations. This forms partnerships between private and government entities. Corporations begin to answer to government bureaucrats instead of to consumers.

Any contract dispute will be settled in a government court. So, they all involve the government.

This discussion is focused on corporations. And more than that, on a specific piece of the corporation issue being the limiting of liability. My point is that your argument is so widely applicable that it would render nearly every action taken in the United States illegitimate. For instance, home ownership in the United States is certainly an act that involves the state in a major way. This too would fall victim to the argument you made earlier. I am assuming that you believe that home ownership would occur in a free market system. If you agree, then that would be an example of selectively using your argument. Condemning corporations but not home owners.

I am not talking about corporatism or the multitude of other issues that come along with the subject of corporations in the United States, I am specifically interested in the idea of limited liability that these corporations confer on the participants.

Re: Corporations - constructs of the state?

DD5 — Fri, 12 Mar 2010 23:04:41 GMT

Wolf:
Maybe a more concise way to say it is that any contract in the United States involves the government.

how so?

Wolf:
It doesn't seem to make sense to single out corporations as being being bad because they involve the government.

Who is only singling out corporations? Are you referring to when people say our system is not free markets but corporatism? What is meant by corporatism is that government uses corporations to control production by means of regulations. This forms partnerships between private and government entities. Corporations begin to answer to government bureaucrats instead of to consumers.

Re: Corporations - constructs of the state?

Patrick — Fri, 12 Mar 2010 23:01:08 GMT

AJ:

What I learned from reading the paper E. R. linked above, and then thinking on my own, is that there is no possible way to divide the members of society into STATE and PRIVATE CITIZENS, other than in the superficial sense of people who work "government jobs." The State is a systemic problem - a cancer if you will - that cannot be well analyzed through only the reductionist view.

I also was reading the article that the Huebert and Block were responding to: http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/

I actually think the response by Huebert and Block was a bit off base. Also, I think that the article by Huebert and Block has a very limited applicability to this discussion. I feel that Huebert and Block misrepresent some of Long's statements.

For example, Huebert and Block say "Long thus appears to share the leftist view that tax breaks for businesses or the wealthy are a "subsidy" – and he couldn't be more wrong."

NOWHERE in his article does Long say anything about apposing tax breaks for the wealthy. Huebert and Block are just putting words in his mouth. In fact, here is a quote from Long's article " There is of course nothing anti-market about tax breaks per se; quite the contrary."

What if the government just gave a subsidy to a single corporation for the exact amount of money that it paid in taxes that year? Huebert and Block would certainly have an issue with that. All Long is saying is that in a practical sense, there is no difference. And he is correct.

Obviously tax is theft, and we want it all gone. What if the government suddenly said that all Mexican Americans are exempt from taxes, but everyone else still has to pay? I would feel the Mexican Americans in this country were getting an economic advantage that they would not have in a purely free market.

Huebert and Block are attaching a morality to Long's simple observation that a corporation that is getting a tax break has an advantage over one that doesn't. If all parties agree that certain corporations receive tax breaks it doesn't take a master praxeologist to come to the same conclusion as Long.

Huebert and Long continue their attack "Long next suggests that Wal-Mart does not deserve its success – apparently because its success has occurred in our mixed economy instead of a hypothetical libertarian utopia."

Long says "I don’t mean to suggest that Wal-Mart and similar firms owe their success solely to governmental privilege; genuine entrepreneurial talent has doubtless been involved as well. "

See the difference?

I'm getting tired, but...

Huebert and Block also attack Long for his comment that Wal-Mart benefits from using public roads which are subsidized by the state. They ask "What method of transporting goods isn't subsidized?" They obviously missed Long's point that "In a free market, firms would be smaller and less hierarchical, more local..." His point is that because of the subsidizing of transportation it allows corporations to expand over larger geographic areas which would incur a greater expense in an economy where some of the transportation cost wasn't paid for by subsidies.

Summary: I actually think Long's article is pretty good. It's a point that I think is often missed by the general public. A truly free market most likely would not have corporations of the scale of Wal-Mart.

Re: Corporations - constructs of the state?

Patrick — Fri, 12 Mar 2010 22:24:54 GMT

DD5:

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.

Maybe a more concise way to say it is that any contract in the United States involves the government. It doesn't seem to make sense to single out corporations as being being bad because they involve the government.

Re: Corporations - constructs of the state?

Patrick — Fri, 12 Mar 2010 22:17:32 GMT

DD5:

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.

Figured out the quote thing. :)

I think the key thing for me is that everyone is voluntarily entering into this agreement. I obviously would like the state to just disappear. But, even without a "state" there could still exist unsecured credit. It's somewhat akin to the argument in that article linked earlier. While roads are certainly owned by the state, we would most likely still have roads in an anarcho-capitalist society. So, even though a corporation maybe in some sort of agreement with the state, by using the state's roads, it is incorrect to conclude there is something wrong with corporations in general because they use roads.

My initial issue with corporations seems to have proved unfounded. I was not attacking corporations in a general sense, but rather one specific trait in our current economy. That trait being the minimization of risk associated with them. I'm sure there is a limitless list of truly awful legislation connected with corporations, but the idea of limiting liability essentially being like unsecured credit seems to be accurate.