How do companies decide?

[z1235]

Starting from an initial set of independent economic agents (acting humans), organizations of 2+ agents (shared ownership companies) seem to consistently emerge. Let’s call all such organizations meta-agents. How do meta-agents decide, and what is the theory (if any) of meta-agent action?

If I share equal ownership of a hot-dog stand with two other partners, how do my personal (subjective) preferences and valuations get manifested into the decisions (actions) of the meta-agent (Hot Dog Stand LLC). It seems like majority voting is a prevalent method for such transfer of preferences. What other options are possible, and lacking those, wouldn’t a rejection of voting as a non-libertarian concept be equivalent to rejecting the existence of meta-agents of 2 or more individuals?

If, out of principle, an agent refuses to (voluntarily) submit himself to the results of any majority voting process, doesn’t he automatically preclude himself from participating in (co-owning) any meta-agents in the market, thus drastically limiting his options of wealth/capital creation?

Not a developed thought or conclusion, by any means. Just some thoughts…

[xahrx]

If majority vote is the method, then as long as that was stipulated in the contract when explicitly agreed to by both or more parties, it’s a perfectly legitimate way to run the business. Voting in a political sense is objectionable because none of the individuals who make up the minority upon whom the majority will enforce its will has explicitly agreed to such an arrangement. I don’t think you’ll find libertarians against the idea of voting per se, just voting what to do with the property of others without their explicit agreement to submit to such a process. In the political system such agreement is considered implicit, even though there is no option to opt out that doesn’t impose fairly massive costs on those who would like to do so.

[liberty_student]

@z1235

If I share equal ownership of a hot-dog stand with two other partners, how do my personal (subjective) preferences and valuations get manifested into the decisions (actions) of the meta-agent (Hot Dog Stand LLC). It seems like majority voting is a prevalent method for such transfer of preferences. What other options are possible, and lacking those, wouldn’t a rejection of voting as a non-libertarian concept be equivalent to rejecting the existence of meta-agents of 2 or more individuals?

Anecdotally speaking, consensus is another one, although very hard to achieve in larger groups. Democracy in my experience is the worst method because shy of a consensus, at least one partner is the “loser” and partnerships are based on trust and co-operation for mutual benefit. If one agent feels he is compelled to act not in his benefit, the relationship can deteriorate quickly.

I think in a social context, that reflects the libertarian issues with democracy, that we don’t really look at because we’re obsessed with individualism, tacit constitutional authority etc. Obviously in a firm, the issue of consent to the decision making process is explicit which eliminates much of the ethical libertarian issues, leaving what I consider the social and economic issues.

Yes, I just drew a distinction between social, economic and ethical.

@z1235

If, out of principle, an agent refuses to (voluntarily) submit himself to the results of any majority voting process, doesn’t he automatically preclude himself from participating in (co-owning) any meta-agents in the market, thus drastically limiting his options of wealth/capital creation?

In other words, if one doesn’t honor his contract, will people be less likely to contract with him? Absolutely.

@z1235

Not a developed thought or conclusion, by any means. Just some thoughts…

Interesting topic. The general level of discussion on this forum has never been higher.

[Dondoolee]

1. There is usually some form of division of labor wehre it kind of “works itself out”. This may change and integrate over time (and usually does), but so long as one chose his business partners wisely, this can be expected.

2. Dependeng on the contract (it may not be 1/3, 1/3, 1/3 for the hot dog stand) their may be an already set hierarchy in place.

3. There may be a more “natural” hierarchy in place. Ex: investor X and Y invested in a Hot Dog business with investor Z who ran several succeful hot dog stands before.

4. It is impossible to actually come up with a model of how or why such a business could or could not be succefull, unless you are an entrepeneur(s) looking at a real business, with your real capital, in a real location.

5. The “democracy” of 3 people who share the costs and losses of a business is not the democracy social democrats speak of; this is 3 men who have an equal amount of power and are tied to profits and losses within the context of a business (atleast this is possible in theory). If disagreements are too much of a burden compared to the profits of the business, usually at least 1 owner will sell his share of the contract. If the business is tanking because three men are bickering and to eager to assert their ideas, while I can’t say this is uncommon (believe me it isn’t), what do you expect?

6. If 2 owners do something while the 3rd owner does not; it is (for a profitable business) not a matter of anything but ones value to the profit of the business. If the 2 owners calculate that legally and productively they can ignore owner 2, they will. A business moves based off of one’s utility to the business (obviously an ownership title is huge, but it is not everything), not off of a monolithic title.

7. If owners call for a vote even outside of the context of split ownership (that is to employees/ managers) it is because they are calculating it to be benificial. The vote is limited in scope, and perhaps limited in personal. Moreover, the vote is not “law”, the owners executive decision is; it is more of a poll.

[AuthoritarianCommerc]

They usually operate on a compartmentalized authoritarianism with ultimate decision making leading to one or a few top officers who can not be contradicted in policy (unless it clearly violates the IPO), but can be removed and replaced by a board or such.

This system tends to be more efficient in privately than publically held companies, due to all the absurd laws giving know-nothing shareholders control over matters they have no knowledge of.

[z1235]

xahrx, LS, William, Vichy, thx for the replies.

I understand the distinction between submitting to a vote with consent and without one. My point here was not about legitimacy, but about utility (effectiveness) of meta-agents (firms) in wealth/capital creation and what their existence says about individual’s preferences regarding their property (capital, wealth). As a matter of principle, a free individual would prefer to maintain full control of his property, and enter into trades/deal/contracts with other agents whenever he wishes. But individuals seem to readily surrender such (full) control over their property (capital) when co-owning a meta-agent in pursuit of more effective wealth/capital creation. It’s as if they have to (voluntarily) give up freedom (control) if they want to improve their chances of ending up with more wealth/capital later.

A market without meta-agents (entities owned by 2 or more agents) would closely resemble a subsistence economy. A developed economy without meta-agents would simply be unsustainable due to the inevitable complex mess of contracts and obligations that would have to be established and maintained between each individual so that advanced production can be performed. Could a mesh of contract-obligated individuals build an iPhone from scratch, starting from mining the minerals needed to produce the IC chips that run it?

Are meta-agents (firms) manifestations of a low time preference for freedom?

[liberty_student]

@z1235

Are meta-agents (firms) manifestations of a low time preference for freedom?

I’m not sure we can make that leap.

I don’t believe a market without meta agents would resemble a subsistence economy. There are tons of individualist entrepreneurs which are able to scale and organize hundreds and thousands of discrete exchanges daily with technology that do not require a formal firm (in the traditional sense) to do so.

That said, the issue isn’t that agents have to surrender autonomy in a meta-relationship, but just as they would in the market, they have to select relationships and directions that are amenable to their trading partners (in this case, co-owners). To argue that meta agents are manifestations of low time preference for freedom, would be to argue (in my somewhat humble opinion) that negotiating an exchange is a manifestation of low time preference for freedom, and I don’t think either of us agree with that notion.

[z1235]

@Liberty Student

To argue that meta agents are manifestations of low time preference for freedom, would be to argue (in my somewhat humble opinion) that negotiating an exchange is a manifestation of low time preference for freedom, and I don’t think either of us agree with that notion.

Thx for the angle. I guess there’s not much freedom-limitation associated with a voluntary exchange as both parties are free to control their property both before and after the exchange. But partnerships, firms, contracts, and pretty much any concept that builds the structural consistency and robustness necessary for advanced production and wealth creation do contain freedom-limiting elements at individual level. Must they, and if they do, might freedom-limitation at individual level be necessary for wealth/capital creation? (Just jamming at this point.)

Initial consent issues notwithstanding, without the freedom-limiting obligations inherent in every contract, and without the freedom-defying submission to majority votes inherent in every meta-agent co-ownership, would any advanced wealth/capital creation be even possible? If individuals readily submit themselves to these freedom-limiting institutions, doesn’t this imply their higher preference for their future freedom (provided by thusly created wealth/capital) over their present freedom to reject meta-agents and freedom-limiting contracts altogether? Hence, the low time preference for freedom?

[hyp3rvigi1ant]

It seems that your term “freedom-limiting” is what I would call cooperation. Often cooperation is more productive than not cooperating. Two people each with $1 million on capital may be able to use it to earn $500,000 over 5 years alone, or may find that cooperating and pooling their capital together may earn them $1.5 million over 5 years ($750,000 each). Of course they have to come to agreements (contract) as to who will make decisions and how they will arrive at those decisions regarding the use of the capital. I would not consider this to be a limitation on anyone’s freedom. I would in fact view it as an expansion of their freedom, as they are now free to earn more money than they would have otherwise, and with this increased income comes even more opportunities (for consumption and investment) for them (more freedom) than they would have had otherwise.

[z1235]

@hyp3vigi1ant

…and with this increased income comes even more opportunities (for consumption and investment) for them (more freedom) than they would have had otherwise.

Which – semantics aside – is the same thing I was saying. The initial (present) freedom-limitation (lack of full control) over the $1million by each agent is rewarded by greater future wealth which allows them greater future freedom. Non-consumption (savings?) of present freedom is rewarded by greater freedom down the road. Low time preference, by definition.

[onebornfreedotblogsp]

@z1235

If, out of principle, an agent refuses to (voluntarily) submit himself to the results of any majority voting process, doesn’t he automatically preclude himself from participating in (co-owning) any meta-agents in the market, thus drastically limiting his options of wealth/capital creation?

It seems to me that as far as wealth creation goes, possibly the most important idea is simply for an individual to recognize his/her own nature and its limitations and to be comfortable with/accept those, rather than try to suppress it in the interests of [supposedly] getting richer than they could/might by other imagined means.

If the individuals nature precludes him/her from being comfortable working within a private, contractual agreement framework that uses majority vote procedures to make business decisions, then it seems to me that that individual would be well advised to look for wealth making opportunities outside of that framework entirely [as they would probably never be really happy, regardless of how mush money their company made, in a majority vote situation], rather than stay and fight “the system” while suppressing their own true nature.

Doing so [fighting] just wastes time and uses valuable mental resources that could instead be used to look for other wealth making opportunities more in line with the individuals personal value system.

regards, onebornfree.

[z1235]

onebornfree, completely agree. Though, for this discussion, even buying an AAPL share – as an example of submission to a majority vote – would amount to a limitation of one’s freedom (or relinquishment of full control) over his $200 capital.

[liberty_student]

@z1235

Must they, and if they do, might freedom-limitation at individual level be necessary for wealth/capital creation? (Just jamming at this point.)

I think you are mixing transaction costs with freedom limitation.

@z1235

Initial consent issues notwithstanding, without the freedom-limiting obligations inherent in every contract, and without the freedom-defying submission to majority votes inherent in every meta-agent co-ownership

Removing that sets the rest up as something different. Without explicit individual consent up front, any relationship can be made to sound like slavery or tyranny.

@z1235

would any advanced wealth/capital creation be even possible?

Sure. I already addressed that. Or are you asking, tabula rasa, can an economy grow without exchange?

@z1235

If individuals readily submit themselves to these freedom-limiting institutions, doesn’t this imply their higher preference for their future freedom (provided by thusly created wealth/capital) over their present freedom to reject meta-agents and freedom-limiting contracts altogether? Hence, the low time preference for freedom?

You’ve conflated freedom with time, claiming that there is a freedom preference as time preference. However, freedom isn’t something that consumed now will be lost in the future. You can be free (which is a subjective standard) now and in the future, and being free now, doesn’t mean you will be less free later. In other words, as a subset of time, freedom is non-scarce.

This is really a fishing expedition amigo.

[liberty_student]

@z1235

onebornfree, completely agree. Though, for this discussion, even buying an AAPL share – as an example of submission to a majority vote – would amount to a limitation of one’s freedom (or relinquishment of full control) over his $200 capital.

Why did you skip over concensus, which I explained is the normal operating mode for small groups of owners? Small firms of 5 or less owners almost NEVER work on majority vote. And if it isn’t true for a small group, how can you then build a theory for a bigger group?

At best, you’re able to say that people who voluntarily participate in democracy might be making a tradeoff of self-direction for collective access, but that would only be consistent for meta agent relationships based on democracy, not all meta agent relationships.

[z1235]

@Liberty Student

However, freedom isn’t something that consumed now will be lost in the future. You can be free (which is a subjective standard) now and in the future, and being free now, doesn’t mean you will be less free later. In other words, as a subset of time, freedom is non-scarce.

I value the absolute control over (freedom to use) $1million capital much more than the absolute control over (freedom to use) $10k capital. In both cases I am 100% free to do as I please with my property but most people would value the latter more than the former. If limited control over (freedom to use) the initial $10k of capital would increase my chances of acquiring the $1million, it’s not inconceivable that I may be willing to relinquish 100% control (freedom) over the present $10k in the hope of acquiring “more” ($1million worth) freedom in the future.

I did not overlook your consensus argument, but I found it of little relevance as advanced economies seem to be largely driven by meta-agents comprised of much more than 5 co-owners (IBM, Apple, Exxon/Mobile, etc). What % of the global GDP is created by majority voting meta-agents vs consensus driven ones? Also, isn’t consensus, too, a freedom-limiting concept relative to the individual’s 100% control of his property?

Finally, I didn’t mean to diminish the importance of initial consent to a freedom-limitation. I only wanted to exclude it for the purposes of the discussion here and only focus on the freedom-limitation itself and its effect in wealth/capital creation. It was never my intent to turn this into a justification for coercion.

This is really a fishing expedition amigo.

What isn’t?

[liberty_student]

@z1235

I value the absolute control over (freedom to use) $1million capital much more than the absolute control over (freedom to use) $10k capital. In both cases I am 100% free to do as I please with my property but most people would value the latter more than the former.

You’ve set up another false choice. You’ve omitted the cost to have more, which is the basis of your argument. The cost of action is subjective, so a more is better argument is fundamentally flawed.

And again, you conflate non-scarce freedom with scarce property and time.

@z1235

I did not overlook your consensus argument, but I found it of little relevance

Then you don’t understand the role of small businesses in the macro economy. There are no large firms that are not first small firms. Global corporations do not emerge out of the ether. Methodological individualism is still in effect.

@z1235

as advanced economies seem to be largely driven by meta-agents comprised of much more than 5 co-owners (IBM, Apple, Exxon/Mobile, etc).

Which of those firms emerged from a market based on consent? You’re mixing paradigms by shifting from theory to empiricism.

@z1235

Also, isn’t consensus, too, a freedom-limiting concept relative to the individual’s 100% control of his property?

You’re back to arguing that exchange is freedom limiting.

@z1235

Finally, I didn’t mean to diminish the importance of initial consent to a freedom-limitation.

Without it, there is no discussion. You start with a premise about actors having freedom to surrender that you later choose to completely ignore.

[z1235]

@Liberty Student

You’ve set up another false choice. You’ve omitted the cost to have more, which is the basis of your argument. The cost of action is subjective, so a more is better argument is fundamentally flawed.

All things being equal, the freedom to control (own) $1million of capital is more valuable to most agents than the freedom to control (own) $10k of capital. The former is a more desirable state than the latter, at least to agents fancying themselves to be capitalists. So, yes, not all freedoms to control property are created equal. The freedom to control more capital is larger than the freedom to control less.

And again, you conflate non-scarce freedom with scarce property and time.

What does scarcity have to do with anything? More freedom is regularly valued more than less freedom. Same as more property and more time are valued more than less of either.

Then you don’t understand the role of small businesses in the macro economy. There are no large firms that are not first small firms. Global corporations do not emerge out of the ether. Methodological individualism is still in effect.

Why is the genesis of firms relevant? Again, what % of global GDP is created by meta-agents driven by a stake-holder majority vote and what % by meta-agents driven by stake-holder consensus?

Which of those firms emerged from a market based on consent? You’re mixing paradigms by shifting from theory to empiricism.

I don’t understand. Please clarify.

You’re back to arguing that exchange is freedom limiting.

I already said that I see exchange as not freedom limiting. How is exchange related to (or relevant for) a majority voting or consensus driven meta-agent?

Without it, there is no discussion. You start with a premise about actors having freedom to surrender that you later choose to completely ignore.

I’m not ignoring anything. Let’s assume, for the purpose of this discussion, that all freedom is surrendered voluntarily. I’m only analyzing the motivations driving such surrenders – one of them obviously being anticipation of greater wealth (hence, freedom) down the road, as manifested by voluntary participation in freedom-limiting meta-agents (firms).

[liberty_student]

@z1235

What does scarcity have to do with anything? More freedom is regularly valued more than less freedom. Same as more property and more time are valued more than less of either.

How can you meaningfully apply time preference to something non-scarce?

@z1235

Why is the genesis of firms relevant? Again, what % of global GDP is created by meta-agents driven by a stake-holder majority vote and what % by meta-agents driven by stake-holder consensus?

What relevance does GDP have to anything?

@z1235

I already said that I see exchange as not freedom limiting. How is exchange related to (or relevant for) a majority voting or consensus driven meta-agent?

Because consensus is how prices are reached in exchange. That is why it is so important to distinguish between majority voting and consensus driven meta agency because one has a price system, the other does not because it utilizes the political means rather than economic means.

[z1235]

@Liberty Student

How can you meaningfully apply time preference to something non-scarce?

Freedom to control scarce resources (property and time) is scarce. My $1million of capital is scarce. It could be solely controlled by me, co-controlled as a part of a firm, or controlled by someone else altogether via my loan to them. I could retain my freedom to control my property/capital or decide to relinquish most (renting, leasing, lending) or some (firm, partnership, contract) of it in return for more wealth/property under my control in the future. Relinquishing X (freedom) now in return for more of X in the future is a manifestation of low time preference for X (freedom), by definition.

What relevance does GDP have to anything?

I meant to use the GDP as a proxy for wealth/capital creation by humans on planet Earth. Toward answering the question in the title of this thread, I contend that most of the wealth/capital on this planet is created via meta-agents (companies) that operate on the principle of majority vote by their stake-holders. I also contend that the prevalence of such meta-agents is proportional to the level of advancement (productivity) of the economies/markets which they comprise. Do you agree or disagree with these contentions?

Because consensus is how prices are reached in exchange. That is why it is so important to distinguish between majority voting and consensus driven meta agency because one has a price system, the other does not because it utilizes the political means rather than economic means.

This is a deflection. You keep marrying consensus with exchange as if exchange is the only process where consensus could possibly occur. For the third time, let’s leave exchange out of this as I already stated that I don’t consider exchange to be freedom-limiting. Going back to consensus, (1) How much wealth/capital is created today by meta-agents running on consensus? (2) Can IBM be run by consensus among all of its stake-holders?

[EDIT: Btw, I best develop my ideas through debate/dialog. As always, thank you for facilitating this process.]

[liberty_student]

@z1235

Freedom to control scarce resources (property and time) is scarce.

How so?

@z1235

My $1million of capital is scarce.

It is, but that has nothing to do with freedom.

@z1235

Relinquishing X (freedom) now in return for more of X in the future is a manifestation of low time preference for X (freedom), by definition.

You’re conflating freedom (a psychological concept which is non-scarce) with property. Flawed premise is flawed, no matter how many times you conflate freedom with time and/or property.

@z1235

I meant to use the GDP as a proxy for wealth/capital creation by humans on planet Earth.

Wealth is also a psychological concept. GDP is meaningless because it barely makes sense within the existing paradigm, and wouldn’t make sense at all in a free market from a praxeological point of view.

@z1235

I contend that most of the wealth/capital on this planet is created via meta-agents (companies) that operate on the principle of majority vote by their stake-holders.

As a methodological individualist, I would say that wealth is created by individuals, and that meta-agency is only a form of organization, not a unique entity unto itself EVEN WHEN given that status by the state by way of license.

@z1235

I also contend that the prevalence of such meta-agents is proportional to the level of advancement (productivity) of the economies/markets which they comprise. Do you agree or disagree with these contentions?

See above.

@z1235

This is a deflection. You keep marrying consensus with exchange as if exchange is the only process where consensus could possibly occur.

No, this is incorrect. Exchange is not the only process where concensus could occur, nor did I assert such, but I did claim that concensus is necessary for exchange.

@z1235

For the third time, let’s leave exchange out of this as I already stated that I don’t consider exchange to be freedom-limiting.

It really does inconvenience your argument which presupposed an exchange of freedom to participate with the meta agent.

This is sorta like “Z’s big bang theory of freedom”. It just emerged dude, it just came out of the cosmos…

@z1235

Going back to consensus, (1) How much wealth/capital is created today by meta-agents running on consensus? (2) Can IBM be run by consensus among all of its stake-holders?

If you want to prove a theory or establish a principle, you can’t ignore all of the meta agents running on concensus. At best, your argument might make sense for meta agents where majority vote prevails, but it is not true of all meta agents, and just because this is the system that evolved, doesn’t prove that this is the only system there could be, should be or will be!

@z1235

[EDIT: Btw, I best develop my ideas through debate/dialog. As always, thank you for facilitating this process.]

Same here, but this argument has a really low ROI for me. You’re mixing terms and misidentifying concepts, then omitting them when I bring it up. I see what you’re trying to argue but it doesn’t make any sense whatsoever. You really need to check your premises. I can only repeat myself (and likewise) so many times as I think we’re dangerously close to talking past each other completely.