In Market and Power, Rothbard writes, about building codes (p. 1099):
Safety codes are another common type of quality standard. They prescribe the details of production and outlaw differences. The free-market method of dealing, say, with the collapse of a building killing several persons, is to send the owner of the building to jail for manslaughter. But the free market can countenance no arbitrary “safety” code promulgated in advance of any crime. The current system does not treat the building owner as a virtual murderer should a collapse occur; instead, he merely pays a sum of monetary damages. In that way, invasion of person goes relatively unpunished and undeterred.
This makes me wonder: what happens if the building is owned not by an individual, but shared among several, perhaps by a jointly-owned company? In this case, would ALL owners should be sent to jail for manslaughter? What if the building belonged to a large corporation with thousands of different owners? It would seem that, in such a case, monetary damages would have to suffice as compensation to the victims. However, here Rothbard is contending that mere monetary damages would not deter shoddy construction.
Would the company that owned the building need to designate an individual to sign off on the building’s safety and assume personal liability for failure? Would 3rd parties like the victims’ life insurance companies insist on compensation that would be enough of a magnitude greater than the damages Rothbard argues are insufficient? How exactly might this work in a free market?
Safety codes are more efficient incentives because they apply before construction. Threats of punishment are only ex post.
The liable people would be the officers or senior managers of the corporation. Keep in mind that a corporation is a statist creation to reduce the liability of managers and owners from receiving the full liability of their actions. Clearly stock holders are not responsible as their interest is passive, but there are always active owners whose interests are not passive. These folks should bear the full weight of the liability even if it comes to encarcariation.
@Bogart
I’m going to play the devil’s advocate. Why wouldn’t the shareholders not be liable? Say Warren Buffet bought himself 51% of Walmart and a Walmart collapsed killing hundreds. As the majority owner of the coporation why wouldn’t he be liable? If you’re starting at the position that owners are liable I don’t really see how you can arbitrarily state that a shareholder (by definition, an owner) somehow isn’t liable.
“I’m going to play the devil’s advocate. Why wouldn’t the shareholders not be liable? Say Warren Buffet bought himself 51% of Walmart and a Walmart collapsed killing hundreds. As the majority owner of the coporation why wouldn’t he be liable? If you’re starting at the position that owners are liable I don’t really see how you can arbitrarily state that a shareholder (by definition, an owner) somehow isn’t liable.”
This is the problem I’m having. Rothbard says that monetary liability isn’t a sufficient deterrent, but there would seem to be no other practical way to punish a large number of shareholders. There’s no easy way I can think of to administer a a shared jail sentence. Is Rothbard wrong here?
Here’s a short blog post by Kinsella on limited liability for corporations.
http://blog.mises.org/9084/corporations-and-limited-liability-for-torts/
He references an article written by Robert Hessen called In Defense of The Corporation. It’s a very good article - maybe it will help you reason things out.
Kinsella’s article was good, but I got the impression that it does not cover all bases: not all possible torts are committed immediately by someone. Now, sure if an insurance agent lies to me about the policy to sell it, it should be him, not the company, who is to be held liable.
But what about u corporate bulging collapsing? There no ‘immediate’ human actor here.
I see no reason whatsoever to hold the CEO liable: he is just being paid to manage the company. His are only advices, not decisions. Shareholders make those.
So, in cases in which a human ‘driver’ is not immediately recognizable than yes, I think shareholder should be liable. And not ‘majority’ shareholder but each and everyone of them.
Practically, it would come down to private courts competing to provide the best solution, so there can be no 100% certain answer, but I believe 60% of possible claims would be settled by pre-arrangement (signs on buildings instructing those who come in that in doing so they forgive any claim to possible structural-caused damages) and most of the rest would be negotiated away, and if a settlement could not be achieved, well, I don’t think the claimer/claimers would find any company willing to assassinate all stockholders. So, basically it will have to come down to either a negotiated monetary repayment (with unlimited personal liability on the shareholder’s part, of course) or nothing at all.
I think under Kinsella’s framework, which is basically Hessen’s idea, the CEO would be responsible. Under resondeat superior the master is responsible for the actions of those below him, which is fine, because the idea is that the ‘servant’ is doing the bidding of the master, was instructed how to do it by the master, was chosen by the master, and so on. Applying this to shareholders we can assume that only shareholders that are active in the corporation can have unlimited liability and non-active shareholders who have nothing to do with running the corporation have limited liability.
The tort liability of inactive shareholders should be the same as that of limited partners - that is, limited to the amount invested - and for the same reason; namely, inactive shareholders and limited partners contribute capital but do no participate actively in management and control.
Source: http://www.lewrockwell.com/blog/wp-content/uploads/2004/04/Hessen+corporation+tort+liability+excerpts.pdf