I was having a discussion with a liberal friend of mine the other day, and I was speaking about the efficiencies of the free market versus the state. I interchangeably used the terms companies, businesses and corporations. He felt that corporations were often very inefficient. But, he made it clear that he was talking about corporations and not simply just any business in a free market economy.
This started me thinking and I apologize if this topic has already been discussed to death on here before. 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.
The state has spend money in order to run itself, and it thus has to be funded by capital to do so. Therefore, the state’s existence itself is owed to capital.
If the sources of capital that contract with the state demand that in return, the state arbitrate their disputes in such a way, that the owners of capital don’t have their own assets taken away for liabilities of business, then the state accordingly agrees to go by these rules.
I’m not sure if I understand the purpose of your response. It does not seem to address any of the points in my post. Whether or not this type of moral hazard exists in other places seems to be somewhat beside the point.
Oh yeah, chartered corporations as we know them today are completely dependent on the state for the legal framework in which they operate, nay, exist as entities at all.
I’m not sure I am following you Prateek. What is “the other way around.” The state is “funded” by capital in the way an art thief is “funded” by the museum he robs.
Why ignore me? Corporations are just legal shelters for the individuals behind them. They would not exist without a state. There would be no need for them.
Like Stranger said, unsecured credit is not a moral hazard by nature. However, protection granted by the state would be since it is provided and funded at the expense of taxpayers.
Why Jacko? Well, I don’t care about your unfounded assertions and don’t think anyone else should either. The answer to why you are wrong is in the paper I linked. Please do better than earlier today when you said, “Ew! I didn’t read it because [inaccurate strawman].”
I apologize if the proper quoted text I am replying to is not showing up. I’m a bit of a noob here, hope I’m not confusing in my responses.
I think I understand the comparison. If I am correct, what you are saying is that the risk in a corporation is born by whoever is supplying the capital. And if someone is willing to supply the capital in this setting then they are supplying unsecured credit. Unsecured credit isn’t a moral hazard, it is just a large risk taken by the lender.
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.
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 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.
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.
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.
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.
