I have compiled a list of ‘must reads’ on the corporation, since I often find left-libertarian attacks on the corporation to lack a basic familiarity with the nature and operations of incorporated firms. I think that anyone venturing into a discussion of corporate entities, limited liability (Respondeat superior), etc. ought to read the following.
Isn’t the idea not that corporations are bad - I mean, some have defended that idea, but I don’t think that makes much sense - but that the number of corporations we see today is less than (probably; it’s an empirical, counter-factual statement, so there are no guarantees, only estimates) would be in a free market, due to a number of government interventions that raise overhead?
Depends on the crank in question. In any case, both hypothesis are unsupported. Small businesses have much more intervention on their behalf in the form of municipal regulations and control of local governments; co-ops are openly subsidized; yet they fail, again and again, for reasons Klein outlines.
Does any of these books mention that http://en.wikipedia.org/wiki/Hold-up_problem is part of the reason for existence of companies? Or are they focused only on transaction costs and their optimization?
Does any of these books mention that http://en.wikipedia.org/wiki/Hold-up_problem is part of the reason for existence of companies? Or are they focused only on transaction costs and their optimization?
Klein talks about this somewhat when discussing the reasons why person-to-person small scale contracting is unlikely, because one recalcitrant party can bring the whole structure of production to a halt.
What’s wrong with firm? I mean, it can appear in a free market, without coercion, no?
For that matter, a corporation is only a specific type of firm.
Lefties have ridiculous fantasy notions of how to operate production based on egalitarian fetishes and zero experience with either law or business. I really have never met or even heard of a left libertarian who was not a college professor, a college student, some other kind of academic or someone in a low-end zero-responsibility job.
That said, the only issue I have with modern corporations is limited liability for tort - everything else seems fully compatible with free market.
So is limited tort liability. This is nothing but respondeat superior, a classic legal principle. Only the shareholders who are in actual control of the firm are responsible for the actions or negligence of employees, the other shareholders are simply capital contributors and are clearly not liable for any damages beyond what they have invested in the corporation. In any case this is practically irrelevant since large corporations have vast liability insurance and captial funds to pay out damages.
Hessen deals with the issue of limited liability in his article and book on corporations, and I believe he is totally correct: limited liability, both for debts and torts, is perfectly consistent with laissez-faire.
The problem is that every firm is a small soviet union and cannot calculate. Sure, there are competitors, but internally it cannot calculate. Those who say that for every factor the firm uses internally there is an external market should note that many (if not all) of those factors are unique or become so once employed. My IT manager is not an IT manager, my workers are not workers and so on. If you doubt that look at the sh*#load of literature on how to manage one’s firm out of ‘beurocratisation”. Well, you can’t, as long as you have small soviet union, you have internal beurocracy, good management notwithstanding. Shortly, the firm is god awfully inefficient and should not exist.
Second argument, Ricardo’s law of comparative advantage implies that there should be no firm: every function but one (the one we do best) should be outsourced to someone else. And that means no firms, just individual experts in markets.
Now, do not misunderstand me, I’m not saying that the firm exists because the state made it so. The firm exists because there are not enough entrepreneurs in society. If you have 500 guys of working age but only 5 with low enough time preferences to be willing to get the proceed of their work after it done (while the worker wants something right now), there will be only 5 firms, at most, around, not the ‘efficient number’ of 500. So, I suspect the firm exists only due to high time preferences and that, in time and if left completely free, firms will get smaller and smaller up to the level of individuals transacting in markets. No more stock exchange folks!
The problem is that every firm is a small soviet union and cannot calculate.
This is gibberish. It can reduce transaction costs and calculate on the market, and since the entrepreneur remains in control of his capital he is quite capable of putting it into the venture with the highest returns. The transactions costs and lack of an internal capital market with person-to-person contracting makes it totally unreasonable for any kind of large scale production.
I have and I’m thoroughly unconvinced. Just imagine managing some multi-national corp as GM along those lines and you’ll see it’s a wholly unsatisfactory answer of Mises’.
No, it is not, at all. The profit-loss system makes all the difference. A company will be as large as it is profitable. What it loses in direct person-to-person calculation it more than makes up for in its internal capital market, reduced transaction costs, ease of coordination, increased capital pool and internalization of externalities. Otherwise it wouldn’t make profits.
That and stock markets are the single most effective method of raising capital ever devised in the history of mankind.
…and since the entrepreneur remains in control of his capital he is quite capable of putting it into the venture with the highest returns.
Sure, I’m not saying firms make no money or have no checks. I’m simply saying they are not the best option.
The transactions costs and lack of an internal capital market with person-to-person contracting makes it totally unreasonable for any kind of large scale production.
Lloyd’s of London, organized crime, you name it. Real-life examples of personal markets providing huge-scale ‘production’ abound.
Leftist apologetics.
I never though I’d live long enough to be called a leftie.