Thoroughly confused on the libertarian position of liability

Economics Political Theory
1

Lately I’ve been pondering how a libertarian law code would work. Criminal law is fairly straight forward. Torts on the other hand are more difficult. Certainly a person whose property or person is damaged unintentionally deserves compensation but in some situations its not clear from whom.

If a FedEx driver hits a pedestrian, clearly it was the driver that was negligent. However, should FedEx be held liable? Some libertarians say yes, others say no. What we are talking about is the difference between strict casual liability and vicarious liability.

Rothbard says there is no place for vicarious liability in a libertarian law code, so a corporation should not be liable for the actions of its employees (even the employee committed the tort in the course of following orders from his employer). See Law, Property Rights, and Air Pollution. “One would expect that in a strict causal liability theory, vicarious liability would be tossed out with little ceremony”

However, in the very same paper Rothbard seems to contradict himself. Here are some examples, please feel free to comment on these.

  1. “While the situation for plaintiffs against auto emissions might seem hopeless under libertarian law, there is a partial way out. In a libertarian society, the roads would be privately owned. This means that the auto emissions would be emanating from the road of the road owner into the lungs or airspace of other citizens, so that the road owner would be liable for pollution damage to the surrounding inhabitants.”

Now if we are following strict liability shouldn’t the drivers of the cars be liable NOT the owner of the road because the drivers were the ones who actually violated the property of others? Why is it that the owner can be sued if the owner did not actually step on the gas pedal? Is it because the owner of the road invited people onto his property for the purpose of driving/polluting? What if a driver accidentally discharged a firearm and it hit someone’s house. Should the road be held liable because the bullet emanated from the road owners property? Or should only the shooter be held liable because the that was not the owner’s intended use of the property?

  1. He uses a railroad example which I’ll adapt a bit…A railroad steams past a farm and sparks fly off igniting stacks of hay on the adjacent property. Rothbard says the railroad should be liable. But what does he mean by the “railroad”. A corporation is only a group of individuals each owning a share of the corporation. If the “corporation” is held liable doesn’t that mean the shareholders are really to be held liable? If so then doesn’t this imply vicarious liability? Or should the conductor be held liable because he drove the train? How about the workers that laid the tracks? Or the engineers that designed the train? There are literally dozen (if not hundreds or thousands) of people that could be found “strictly” liable. To me this is a situation where you cannot possibly apply strict liability. Isn’t this why the common law has adapted to allow the corporation to be held liable?

  2. This is not a Rothbard example, but nevertheless. If a kid in my store spills his drink on my floor and a customer slips on it am I to be held liable? What if an employee of mine tried to clean it up and did a lousy job and the customer still slips. Rothbard would say the employee should be held strictly liable. Or should the owner be held vicariously liable?

Stephan Kinsella makes an interesting observation. He rejects, Rothbard and Block’s argument that a person that “incites” a murder is not guilty because he exercised “free speech”. Kinsella says that when a person shoots somebody, technically it is the gun that killed the person, but we say the gun was just the “means” by which the person committed murder. If I desire to kill somebody and ask you do to it for me, I am guilty because you simply are the means by which I commit murder. That is, people can be the means themselves.

Apply this to torts. FedEx is delivering the package. The employee is simply the means by which FedEx delivers the package. Therefore if a tort is committed is it not FedEx that is committing the tort at least in part? The driver would not have been in the truck or on the road if FedEx were not paying him to drive the truck.

Now that opens another can of worms, should the “corporation” be held liable then the state-created limited liability firewall that limits shareholder liability to the amount they invested should be called in question. IF we agree that the corporation can be sued, the why should the law stop the payment of damages at the amount the investors invested? Shouldn’t shareholders be fully liable?

It seems to me that we have not fully thought this through. Does anyone have any thoughts? Who’s liable in examples 1, 2, and 3?

Does Rothbard contradict himself re: environmental law?
2

Whether FedEx or the Employee is responsible really seems like an issue between the driver and FedEx. Employers either do, or do not, accept responsibility for negligence on the part of their employees within some set of boundaries. Generally, people would prefer to deal with employers that accept some degree of liability for employee actions since it means th employers are exercising more discretion in hiring their employees and holding them to a higher standard of performance monitoring.

The problem really has more to do with contractual norms than jurisprudential ones. I would say that it is a reasonable position, epistemically, to say that people are only legally responsible for their own behavior unless they have an implicit or explicit contract indicating otherwise.

3

“Rothbard says the railroad should be liable.”

Where exactly does he say that?

In recent years, however, jurists and “Chicago school” economists have attempted to develop theories of value-free property rights, rights defined and protected not on the basis of ethical norms such as justice but of some form of “social efficiency.” In one such variant, Ronald Coase and Harold Demsetz have asserted that “it doesn’t make any difference” how property rights are allocated in cases of conflicting interests, provided that some property rights are assigned to someone and then defended. In his famous example, Coase discusses a railroad locomotive’s blighting of nearby farms and orchards. To Coase and Demsetz, this damage of a farmer’s crops by the railroad is an “externality” which should, according to the tenets of social efficiency, be internalized. But to these economists, it doesn’t make any difference which of two possible courses of action one adopts. Either one says that the farmer has a property right in his orchard; therefore the railroad should have to pay damages for his loss, and the farmer should be able to enjoin the railroad’s invasive actions. Or the railroad has the right to spew forth smoke wherever it wishes, and if the farmer wishes to stop the smoke, he must pay the railroad to install a smoke abatement device. It does not matter, from the point of view of expenditure of productive resources, which route is taken.

For example, suppose the railroad commits $100,000 worth of damage, and in Case 1, this action is held to invade the farmer’s property. In that case, the railroad must pay $100,000 to the farmer or else invest in a smoke abatement device, whichever is cheaper. But in Case 2, where the railroad has the property right to emit the smoke, the farmer would have to pay the railroad up to $100,000 to stop damaging his farm. If the smoke device costs less than $100,000, say $80,000, then the device will be installed regardless of who was assigned the property right. In Case 1, the railroad will spend $80,000 on the device rather than have to pay $100,000 to the farmer; in Case 2 the farmer will be willing to pay the railroad $80,000 and up to $100,000 to install the device. If, on the other hand, the smoke device costs more than $100,000, say $120,000, then the device will not be installed anyway, regardless of which route is taken. In Case 1, the railroad will keep pouring out smoke and keep paying the farmer damages of $100,000 rather than spend $120,000 on the device; in Case 2, it will not pay the farmer to bribe the railroad $120,000 for the device, since this is more of a loss to him than the $100,000 damage. Therefore, regardless of how property rights are assigned — according to Coase and Demsetz — the allocation of resources will be the same. The difference between the two is only a matter of “distribution,” that is, of income or wealth.[5]

There are many problems with this theory. First, income and wealth are important to the parties involved, although they might not be to uninvolved economists. It makes a great deal of difference to both of them who has to pay whom. Second, this thesis works only if we deliberately ignore psychological factors. Costs are not only monetary. The farmer might well have an attachment to the orchard far beyond the monetary damage. Therefore, the orchard might be worth far more to him than the $100,000 in damages, so that it might take $1 million to compensate him for the full loss. But then the supposed indifference totally breaks down. In Case 1, the farmer will not be content to accept a mere $100,000 in damages. He will take out an injunction against any further aggression against his property, and even if the law allows bargaining between the parties themselves to remove the injunction, he will insist on over $1 million from the railroad, which the railroad will not be willing to pay.[6] Conversely, in Case 2, there is not likely to be a way for the farmer to raise the $1 million needed to stop the smoke invasion of the orchard.

The love of the farmer for his orchard is part of a larger difficulty for the Coase-Demsetz doctrine: Costs are purely subjective and not measurable in monetary terms. Coase and Demsetz have a proviso in their indifference thesis that all “transaction costs” be zero. If they are not, then they advocate allocating the property rights to whichever route entails minimum social transaction costs. But once we understand that costs are subjective to each individual and therefore unmeasurable, we see that costs cannot be added up. But if all costs, including transaction costs, cannot be added, then there is no such thing as “social transaction costs,” and they cannot be compared in Cases 1 or 2, or indeed, in any other situation.[7]

Another serious problem with the Coase-Demsetz approach is that pretending to be value-free, they in reality import the ethical norm of “efficiency,” and assert that property rights should be assigned on the basis of such efficiency. But even if the concept of social efficiency were meaningful, they don’t answer the questions of why efficiency should be the overriding consideration in establishing legal principles or why externalities should be internalized above all other considerations. We are now out of Wertfreiheit and back to unexamined ethical questions.[8][9]

Another attempt by Chicago school economists to make legal public policy recommendations under the guise of Wertfreiheit is the contention that over the years common-law judges will always arrive at the socially efficient allocation of property rights and tort liabilities. Demsetz stresses rights that will minimize social transaction costs; Richard Posner stresses maximization of “social wealth.” All this adds an unwarranted historical determinism, functioning as a kind of invisible hand guiding judges to the current Chicago school path, to the other fallacies examined above.[10]

If the law is a set of normative principles, it follows that whatever positive or customary law has emerged cannot simply be recorded and blindly followed. All such law must be subject to a thorough critique grounded on such principles. Then, if there are discrepancies between actual law and just principles, as there almost always are, steps must be taken to make the law conform with correct legal principles.

“state-created limited liability firewall that limits shareholder liability to the amount they invested should be called in question.”

But I’d generally point you towards Hoppe’s: Property, Causality & Liability

Rothbard has offered the following “strict liability theory” encompassing
both criminal and tort law.1 In every criminal or tort case,
[e]vidence must be probative in demonstrating a strict causal chain of acts
of invasion of person or property. Evidence must be constructed to demonstrate
that aggressor A in fact initiated an overt physical act invading the
person or property of victim B. (Rothbard 1997, p. 137)

What the plaintiff must prove, then, beyond a reasonable doubt is a strict
causal connection between the defendant and his aggression against the
plaintiff. He must prove, in short, that A actually “caused” an invasion of
the person or property of B. . . . To establish guilt and liability, strict
causality of aggression leading to harm must meet the rigid test of proof
beyond a reasonable doubt. Hunch, conjecture, plausibility, even mere
probability are not enough. . . . Statistical correlation . . . cannot establish
causation. (Rothbard 1997, pp. 140–41)

4

Awesome question!

I’d rather not comb through the Rothbard quotes in detail (time constraints) but I think the word I would apply to these situations is “conspiracy”. I’m not sure if there should be a firewall for stockholders but I find it difficult to imagine an enforceable court decision that awarded damages from stockholders beyond the equity they hold in the company. Suppose there are 20,000 stockholders in Company A which has been hit with an award that is double its net asset value. Who pays for the collections on all those individuals? I doubt that most stockholders would joyfully comply, so who pays for the individual lawsuits against each and every stockholder to recover the “award”? Since, in my view of libertarian law, there would only be stipulated court decisions (both parties equally agree to the final decision), what company’s stockholders would ever agree (as a class, since this would essentially be a class-action lawsuit in reverse… the defendants are a class, rather than the plaintiffs) to a settlement that forces them to give up their personal assets beyond the assets they had invested into that company’s stock??

I certainly agree there should be no statutory firewall.

Clayton -