Economics Questions

Re: Corporations

Johnny Doe — Fri, 02 Sep 2011 07:18:36 GMT

The owners hire a board of directors, the BoD hire the management, the company makes a profit, the owners get a dividend, fraudulent business practices are uncovered; should the owners pay back the dividend/pay for damages. Who should pay for the damages?

Re: Corporations

Wheylous — Thu, 01 Sep 2011 22:52:26 GMT

Of course he should be, as the articles JJ lists, they would be liable due to causation. If you can directly trace the order which caused the tort, the whole line of people agreeing to it and helping it happen are liable. Respondeat superior not being universally true (master is always responsible for the servant) doesn't mean that it isn't sometimes true. Was the servant acting of his own volition? Liability ends there. Was he ordered? Find the source of the order.

Re: Corporations

Johnny Doe — Thu, 01 Sep 2011 22:40:11 GMT

Scrooge McDuck:

@ Johnny Doe

The state also endorses property rights (to some extent), that doesn't mean that property rights are anti-free market.

There isn't anything wrong with limited liability. From the Kinsella article posted above:

"Lately I’ve begun to emphasize that the anti-corporatists, in characterizing limited liability as a privilege, have to assume that on the free market shareholders should have liability. But this is a dubious assumption. First, it rests on the idea of respondeat superior (master is liable for torts of his servant), which itself dubious. Second, it rests on an undeveloped notion of strict liability which assumes that you are liable for torts committed “with [or by?] your property.” But property does not commit crimes or torts–people do. Property serves as means. If you borrow my car and run over someone, it is not obvious to me that I am responsible for your negligent action–just because I owned the car. "

What if the owner/master calls the shots(via the board of directors/management), and reaps the reward if it`s sucessfull, shoud the owner/master be liable?

Re: Corporations

Wheylous — Thu, 01 Sep 2011 01:54:59 GMT

One of the articles JJ links (which itself cites another article) mentions a bunch of "privileges" corporations have (including LL) and then says

If potential creditors find any of these features objectionable, they can negotiate to exclude or modify them.

This seems like a good argument for the LL part (not the tort, which is apparently discussed elsewhere).

Yet this argues about corporations in theory being justifiable. It doesn't discuss current corporations which have not signed such contracts. And if we assume that the government-issued LL is bogus and that companies indeed need their own contractual one, then corporations which currently use government LL without their own contractual one are unjustifiably LL-protected. And if LL indeed must be an artificial creation through contract and can't be naturally-derived from principle, then the shareholders in the current system should be liable. Of course, this brings the question of who the shareholders bought the shares from (company or other shareholders), which is a separate issue, but if any actually bought it from the company, then they are liable (without the contractual LL and without some natural derivation of LL invalidating need for contractual LL at all).

If I am confusing, please ask me to explain.

Also, about this:

Shareholders don’t cause it [damage] any more than a bank who loans money to a company causes its employees to commit torts.

I think the better reductio would be "any more than the the common citizen who gives money for storage to a bank is responsible for the torts a bank commits." I do, however, endorse smart bank deposits and not whining that "your bank is destroying the economy by giving bad loans" and still giving it your money.

Re: Corporations

Wheylous — Thu, 01 Sep 2011 01:15:19 GMT

it's not like a personified state, God or Enron can take the witness stand to testify as to what they really wanted their Earthly agents to do

But the shareholders give power to the people who control the place to make decisions. These people then hire employees who have definite contracts of what they can and cannot do. Hence, can't you whip out the contract and say that the employee was not acting within his duties?

Re: Corporations

James — Thu, 01 Sep 2011 00:25:49 GMT

So under the current LL, corporation employees are always considered as acting as servants?

Well, not in theory. Government officials aren't allowed to act selfishly and capriciously on their own volition and claim they were acting as agents of the state, in theory, and the Pope isn't allowed to make up any old nonsense of his own and claim it's a message direct from God, in theory, but in practice it's not like a personified state, God or Enron can take the witness stand to testify as to what they really wanted their Earthly agents to do... Therein lies the problem, you see. You can get away with more than you should if the guy who owns the plant is a piece of paper.

Re: Corporations

Wheylous — Wed, 31 Aug 2011 23:09:07 GMT

I'm fairly sure that common-law principle of a master being liable for his servant's actions is only meant to apply where the servant is acting in his capacity as a servant, and not of his own volition.

That was coherent and clear, nice.

So under the current LL, corporation employees are always considered as acting as servants?

Until I have had some more time to read the articles (eh, I guess now, why not) I will not be able to choose between James's answer and JJ's. Well, off to reading it is. If anyone has any other argument to post, please do! I'd like to get a 360 view of the subject.

Re: Corporations

James — Wed, 31 Aug 2011 10:56:24 GMT

I think the distinction there has to be based on whether you had been authorised to use the property in that way.

If the property is being used on the authority of the owner, it is as if the owner is using it himself. If it's not being used with his authority, then it's not as if he's using it himself.

This is not an easy principle to apply to facts - it's nigh-impossible to determine whether some things were implicitly authorised or not - but it's probably the best available. If someone is hired by their employer to murder people, surely the employer should be liable too? Otoh, if someone is driving their company car drunk, and runs someone over, it doesn't seem just to say that the owner of the car should be liable.

I'm fairly sure that common-law principle of a master being liable for his servant's actions is only meant to apply where the servant is acting in his capacity as a servant, and not of his own volition.

Re: Corporations

Scrooge McDuck — Wed, 31 Aug 2011 10:41:34 GMT

@ Johnny Doe

The state also endorses property rights (to some extent), that doesn't mean that property rights are anti-free market.

There isn't anything wrong with limited liability. From the Kinsella article posted above:

"Lately I’ve begun to emphasize that the anti-corporatists, in characterizing limited liability as a privilege, have to assume that on the free market shareholders should have liability. But this is a dubious assumption. First, it rests on the idea of respondeat superior (master is liable for torts of his servant), which itself dubious. Second, it rests on an undeveloped notion of strict liability which assumes that you are liable for torts committed “with [or by?] your property.” But property does not commit crimes or torts–people do. Property serves as means. If you borrow my car and run over someone, it is not obvious to me that I am responsible for your negligent action–just because I owned the car. "

Re: Corporations

Johnny Doe — Wed, 31 Aug 2011 10:27:06 GMT

Scrooge McDuck:

Corporations would probably exist under a free market. If you think about it, a corporation is just a pooling of capital, of which each shareholder is only liable for what he puts in. There isn't anything anti-market, involuntary, etc about that.

What about the state endorsed limited liability part?

Re: Corporations

James — Wed, 31 Aug 2011 09:56:12 GMT

I don't think a corporation should have distinct juristic personality. Whether or not it would make sense to sue a shareholder for what a company employee does with "their" property is not a question that can reasonably be answered if the shareholders are not regarded as the owners of the company and its assets in any case, which currently they are not.

No one owns a company at the moment. In terms of the law, it is a distinct person unto itself 'owned' by no one. It is governed in terms of its constitutional mandate, which authorises some or all of the shareholders to appoint executive officers to act on its behalf, but no one actually owns the damned thing. The assets of a company are normally owned by the company itself - not the shareholders.

I can't help but feel that the tragedy of the commons is likely to befall assets that aren't owned by natural persons. Artificial juristic personality is a bugbear, and I don't think it can be rationally justified from a strictly voluntarist perspective.

Re: Corporations

Scrooge McDuck — Wed, 31 Aug 2011 08:19:27 GMT

Corporations would probably exist under a free market. If you think about it, a corporation is just a pooling of capital, of which each shareholder is only liable for what he puts in. There isn't anything anti-market, involuntary, etc about that.

Re: Corporations

FleetCenturion — Wed, 31 Aug 2011 07:39:29 GMT

Milton Friedman was fond of saying that when government gets too big, business takes it over.

This is NOT true when the situation is the other way around. Big business can do nothing with a small government. Crony capitalism thrives on government regulation to eliminate its competition and keep prices high. Large corporations can always deal with regulations (half the time because they write them) since the company infrastructure to deal with them is already in place. Their small, often superior competitors are forced out of business or into obscurity because they cannot expand. Why should corporations invest in their businesses and produce more, when they can invest in a political candidate instead, and earn more producing less?

No business should have government-backed anything. Failing businesses are at least as important to a free economy as successful ones. In fact, it’s often more important for a starting business to know what doesn’t work. Dysfunctional business models today get rewarded for destroying wealth.

Re: Corporations

John James — Wed, 31 Aug 2011 03:57:08 GMT

"In Defense of the Corporation"

"The Corporation and the Free Market" (also lecture topic)

"Corporations and Limited Liability for Torts"

"Left-Libertarians on Corporations 'Expropriating the Efforts of Stakeholders'"

Corporations

Wheylous — Wed, 31 Aug 2011 03:31:59 GMT

I heard Molyneux discuss corporations in one of his videos (regarding environmental damage) and it struck me as a good argument for libertarianism.

What's the deal with corporations? I know that they have a government-backed limited liability. Is that a big thing that government does to hurt capitalism and free markets? Could it be a big trump card when liberals rail against capitalism?