Any contract dispute will be settled in a government court. So, they all involve the government.
This discussion is focused on corporations. And more than that, on a specific piece of the corporation issue being the limiting of liability. My point is that your argument is so widely applicable that it would render nearly every action taken in the United States illegitimate. For instance, home ownership in the United States is certainly an act that involves the state in a major way. This too would fall victim to the argument you made earlier. I am assuming that you believe that home ownership would occur in a free market system. If you agree, then that would be an example of selectively using your argument. Condemning corporations but not home owners.
I am not talking about corporatism or the multitude of other issues that come along with the subject of corporations in the United States, I am specifically interested in the idea of limited liability that these corporations confer on the participants.
This has been something I’ve pondered, as well. In principle, I don’t see why limited liability (LL) interactions would be rejected by a free market, as long as everything (equity, exposure, etc.) of every party involved is fully disclosed and accepted ahead of time.
I think it’s only in combination with fractional reserve banking (FRB) that LL produces a “deadly combination” and a blatant moral hazard. In a world of (both government subsidized and LL) banks and “free” money, lenders have no incentive to be vigilant about the equity stakes and exposures of the owners of the LL enterprises to whom they lend. So what if Firm A is leveraged to the hilt with debt, and its owners have no skin in the game? If Firm A wins, both it’s owners AND the bank’s (lender) owners win. If Firm A fails, neither its owners, nor the bank’s owners suffer. They can both turn around and establish new LL entities and give it another try. It’s FRB that allows a leveraged (minimal owners’ equity, LL) bank to freely lend to a (minimal owner’s equity, LL) company and expose them both to a hugely asymmetrical risk/return profile.
Whoever doesn’t make an effort to expose themselves to this “free lunch” – by, at least, running a LL business – ends up paying for it. And that’s pretty much everyone else.
The idea is simple. If you borrow money and you cannot repay, your own personal assets (house, car, personal savings) are not at risk. The result is that the premium on risk is higher then it may otherwise have been in a free market. There are no winners here but only losers. In a free market, all such terms would be contractually settled by the parties involved before the loan.
That doesn’t mean the government is involved in all contracts, but only that it can get involved. That is not the same thing.
I understand the idea of unsecured credit and limited liability, now. In fact, I have reiterated this several times in this discussion. My understanding is that it would exist even in a purely free market. Your second point is semantics. This discussion is going nowhere. Other people have answered my question.
LOL, watch out, Olly is like the hall monitor of the forums. All this righteous indignation, and no power to enforce it! Rather authoritarian for a Libertarian, eh?
Good god, just forget it. My point is that what he is saying is too general. It all centers around the word “INVOLVE.” It is far too vague to make his point valid. Without me clearly defining what I mean by “INVOLVE” how could you possibly say my logic is flawed! Just drop it.
The “Economic Question” that was posed in this thread was answered by the poster which I identified.
I don’t know how mises.org looks on a bit of necromancy, but here goes…
Yes, corporations are 100% constructs of the state. This talk of limited liability is a bit of an unrelated distraction. What makes a corporation a corporation isn’t limited liability (although limited liability IN ONE FORM is a knock-off effect of incorporation), but rather an artificial legal personality separate from the owners of the corporation. Common law courts established long before the Bubble Act that incorporation was not a permissible act unless done with a charter from statutory authorities. Business people responded by taking up all the aspects of incorporation they could (joint-stock ownership, limited liability, etc) and going from there. Each feature didn’t work EXACTLY as it had in an incorporated form*, but they were used and accomplished, more or less, the ends they had accomplished under a corporate charter.
In a theoretical laissez faire society, there would be a general enabling law that allowed anyone to incorporate their organization for any reason, but corporations would be subject to a list of regulations governing their behavior with respect to other people (kind of like how they are today). This would force people to only incorporate when they had an extremely good reason to, because otherwise regulatory compliance costs would make their venture unprofitable.
*(for instance, since common law courts didn’t usually recognize limited liability, limited liability was given to shareholders by having them be anonymous in their capacity as owner of a share – they still received dividends and could vote at share-holder meetings, but they couldn’t take anything to do with their share to court without revealing their identity and giving up limited liability)
