Are corporations a product of the government? Would they exist without the government, and why / why not? I need help with this for a paper, but I figured it’d be a discussion too. Was there a Supreme Court case or legislation that started corporations?
The slogan that “corporations are creatures of the State” is one of the most pernicious, stupidly anti-business ideas adopted by libertarians.
Quoting Rothbard, [C]orporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such men would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.
Limited liabiltiy and special privileges are government granted. The pooling of resources in peaceful activities are free-market-y
I’d have to go back and look this up, but I think some of the confusion on “corporations are creatures of the state” stems from state-chartered corporations of the nineteenth century. If memory serves, companies had to receive charters from a state in order to be awarded government contracts to build bridges, roads, turnpikes, etc…Because of the subsidies being handed out, there was a mad rush to organize “corporations” and secure a charter from the state, causing many people today to think that the corporate form itself was a state creation.
In the technical sense of the word corporation, the corporation as we know it today is a product of the State. Each corporation is granted charter by the State, and the benefits and drawbacks of that charter differ from state to state. The Federal government further protects corporations, granting them the rights and privileges as a corporal “person”. (Perhaps that is where the term corporation comes from?)
However, the more general term “firm” which refers to a “corporation” in the non-state endowed sense, is not a product of the State. Firms are a product of freely acting individuals, voluntarily partnering to form an entity in the attempts to make profit. No special rights are granted by the state to the firm. An the “rules” of a free market, i.e. voluntary exchange and contract, apply to firms and “equally” to individuals.
I don’t know if I imagined it but I thought the original corporations grew up in the merchant shipping industry…
Neoclassical - Just because they would announce that they act under limited liability does not make it the same as government created system of LLC
What are the differences, then?
In essence, the main gripe–I believe–is that corporations have limited liability, sheltering owners from negative consequences (accidents, externalities, what-have-you).
This can, as Rothbard state, emerge freely. It’s like saying “space exploration is a creature of the State” or something.
This can, as Rothbard state, emerge freely. It’s like saying “space exploration is a creature of the State” or something.
it can for corporate debts, but its certainly more controversial for things like torts
@ Vienna Sausage:
Do you know if there was a court ruling that determined corporation to have the same rights as people?
A “corporation” in the real world is a product of legislative act. Simple as.
Do you have any court cases or legislation from the United States? Thanks for the link, but I have to keep it related to the United States for what I’m doing.
Sure, legislation favoring corporations, against what would have emerged in a free market, certainly exists. Obviously, limitations to tort liability is a hot issue now.
But, here’s the thing: blacks are politically favored by legislation (e.g., affirmative action), that doesn’t mean blacks qua blacks are bad!
Seems to me it would not occur to the same degree (less corporations would have LL). What do you think?
I’m not sure. There might even before more corporations, since I believe government intervention politically favors entrenched, well-connected businesses at the expense of entrepreneurial expansion. I don’t know, a priori, if limited liability would be less common, just as common, or even more common in a fully liberalized marketplace.
Well I meant in relative terms. Imagine the number of corporations don’t change.
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LL is inherently (in the short term) favouring the corporation against creditors and customers
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Anything that is institutionalized has greater moral authority and therefore has a higher compliance rate
Wouldn’t it make sense that a push against LL would occur?
BTW some interesting reading:
I know this was asked for several posts ago, but the big SCOTUS case a little while ago (http://www.supremecourt.gov/opinions/09pdf/08-205.pdf) was dealing with campaining and corportations, and although it is 183 pages of lawyer speak, it supposedly gave at least some form of “real” person status to corportations.
“Limited liabiltiy… are government granted.”
LIMITED LIABILITY
In Rothbard’s system, individuals possess the legal privilege of specifying their mutual obligations. There is no higher appeal beyond them. His discussion of limited-liability laws rests on this moral and judicial foundation.
Rothbard denied that limited liability is a grant of privilege by the State. He wrote the following in Power and Market (1970), which had originally been in the original manuscript of Man, Economy, and State.
Finally, the question may be raised: Are corporations themselves mere grants of monopoly privilege? Some advocates of the free market were persuaded to accept this view by Walter Lippmann’s The Good Society. It should be clear from previous discussion, however, that corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such men would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.
“the pooling of resources in peaceful activities are free-market-y”
Yes.
I’d do a $1mil contract with an LLC with $10mil capital vs. a (no-LL) company owned by a guy worth $10k any time. LLC or not, free agents will calculate their risks and act accordingly. A firm is free to establish itself as an LLC with $X capital but if no one wants to do business with it, then it may have to put up more capital in order to bring its liability limit above a threshold demanded by the market. If not, it would be a firm no more. The state has nothing to do with this.