Ok, fair enough. My bad for interpreting it otherwise.
Why? Is there a corporation discount rate at the banks?
How does this apply to small corporations?
Are you saying that in a free market the upper limit on firm size, regardless of capital, structure, and industry would be around 200 employees?
Then he would probably create a small corporation, to insulate his personal holdings against losses. There is also the issue of TP. Some people want to live for and be paid today. The mutualist myth is that entrepreneurship is for everyone. It really isn’t. Most people only work as a means to an end (housing, clothes, food, entertainment). For them, wage labour makes sense. They can consume now, and forego capital accumulation. They are also insulated from moderate risk if the firm isn’t as profitable as expected.
I agree, with one caveat. If they can acquire capital. Otherwise, they might starve. Very few businesses are profitable in the short run. That is the weeding out process, which makes the rise of a Walmart from mom and pop status all that much more amazing, even if it is now a statist collaborator.
Your criticism of big business is fairly reasonable. Your criticism of corporations is based on conflation with big business.
Corporations != big business.
IP freedom is not intuitive. I was already a pretty radical anarchist before I considered it, which made it easier for me, because I saw the state involved, and its arbitrary terms, and knew it could not be a natural order of things.
No worries - I just didn’t want to give the impression that my lack of response was a concession of any sort… 
I knew you weren’t conceding because as you said, you never posted your POV. [;)]
I seem to recall hearing about research in the past that tends to vindicate the “100-200 persons” as the upper-limit to organizational efficiency. I don’t think it’s a novel idea. Of course, I’m shooting from the hip here, maybe I’ll look into the topic…
[FWIW, however, an such research obviously took place in the context of state-distorted economies. Perhaps there are fewer org. constraints in a market that is more free. Perhaps, though, this is something of a constant.]
If you look at most corporations, each “division” is only 20-50 people. For example, the “core search” group at Google is around 20-30 people.
Instead of having one huge corporation with many divisions, you’d have a lot of small businesses.
Consider car manfacturing. One business would make carbeurators. Another business would make engines. Another business would make the transmission. You’d have a bunch of small businesses working together, rather than a monolithic corporation.
Once you get past 100-200 people, the incentive would be to split it into two smaller businesses or have someone leave and start their own business.
some synopses of past research, here.
It seems to me that if our mutual friend Cork were reading this, he might dip into his bag of developed arguments, and pull out the division of labour as an example of massive hierarchies that get more efficient as they scale out, rather than less efficient. Granted, I am not comparing a firm directly to the division of labour, only making the point that even spontaneous order is capable of efficiently organizing numbers exceeding 200, 2,000 or even 2 million. In fact, spontaneity may be the key and firms do not tend to spontaneity under the state.
I don’t think I will live to see the free market, but I wish I could. If only to participate in it for a week, and drink in the ambrosia of its wonder with my eyes.
That is not a constant for all corporations. Again, not all corporations are big businesses.
Lots of corporations are small businesses.
That is already what happens. I worked for over a decade in automative. The actual manufacturer only does design and final assembly. Very little else is done in house. Most of it is bid out to 3rd party firms.
Why?
Bogus. A large corporation can borrow because it has collateral, where you do not.
liberty student: thanks for all your posts in this thread.
You beat me to the punch with this objection.
Back to square one (How did the corporation get so big to begin with?), I see.
entrepenurial skill?
The corporate form allows firms to combine capital from multiple sources in varying amounts, because personal liability is mitigated.
So we can say, that the corporate form provides an opportunity for greater capital accumulation (and this may be unfair) however we can’t criticize a firm for starting off with more capital if it is invested voluntarily. There is nothing per se wrong with a group of people pooling resources for a common investment goal, and this is why I believe that voluntary corporations or some similar form of limited liability will arise in the free market. It might not thrive because it has a disadvantage by contracting liability restrictions with its trade partners, however how great a problem that will be remains to be seen.
Right, the whole point of a corporation is to reduce transaction costs. There’s nothing unfair about providing opportunities for greater capital accumulation, in fact, I’m not even sure what the word “unfair” means in this context. If we’re talking in value-free terms, all the word unfair" can be taken to mean is that it is a better business model (in a free market).
The fact of the matter is that some sorts of business are very capital intensive and require large amounts of money to operate. The corporation allows them this to happen and secondary markets in stocks facilitates this even further. The notion of, say, an aeroplane manufacturer being run as a cooperative is ridiculous on its face. On the other hand, cheese production could (and is) run on a cooperative basis.
Unless of course, you want to invoke bossism, but…
Hi Jimmy.
The following short piece on corporate criminal liability may constitute a free-market or libertarian case against the corporation. I wrote this in reply to the following article: http://www.pointoflaw.com/feature/archives/2009/07/end-dont-mend-corporate-crimin.php
Regarding this passage:
“When a corporation is fined, it is the owners, i.e., the shareholders, who pay the fine. But the defining characteristic of modern corporation is the separation of ownership and control. The shareholders, who own the corporation, have no control over the actions of the employees who commit the offense. Hence, inflicting punishment on a corporation’s shareholders (and its other employees who had no hand in the wrongdoing but may nevertheless lose their jobs) is punishing the innocent. Punishing those who are innocent of wrongdoing cannot be justified on retributivist grounds.”
A subtle point that I haven’t seen discussed, and which people may find interesting or useful:
If specific individuals commit what is determined by the legal system to be a crime (civil, criminal, whatever…), and the legal system determines a specific fine to be the appropriate remedy, and this fine is levied against the corporation as an entity (the shareholders), then there are formal/logical implications.
What this outcome means, and must necessarily mean, is that the individuals who actually committed the acts in question did not have to pay the entire amount that the legal system determines is the appropriate penalty. This means that this particular “crime” (whatever it may be) has been indirectly or unintentionally subsidized by corporate liability laws, by spreading the cost of the crime (the penalty) among the shareholders, and taking the brunt of the penalty off the shoulders of the perpetrators.
This subsidization of the specific crime is not an intentional outcome of corporate liability, but is a “constitutive” outcome of it. This means that necessarily, when the legal or societal determination is that a specific crime requires a certain penalty, and that penalty is spread among many shareholders rather than falling entirely on the perpetrators, then this constitutes a subsidization of the crime, in that the cost to the perpetrator of committing it necessarily has been lowered by spreading the cost among the shareholders. (necessarily, because by our original assumptions, the amount that the crime is supposed to “cost” to commit (the penalty) is X. And the amount the individual perpetrator pays is some amount less than X)
Regarding the future then, corporate actors can survey the corporate and legal landscape, and find the specific crimes where they can gain the most personally (income, stock options, etc…), and where the penalty for the crime will be most widely spread among shareholders. They can do this by general or intuitive knowledge, or by shrewd calculation and research.
In this atmosphere, we would expect that where the spread is largest (where corporate actors stand to gain the most, and where it is most likely for the cost of crimes committed by corporate actors to be spread among shareholders) that is where most crimes will occur.
The argument I’m making depends on no particular knowledge of criminal or civil law. It depends only on the assumptions that: there is agreement on a specific penalty, that a crime of whatever kind has been committed by a corporate actor which crime is subject to this penalty, and that the cost of committing that penalty is lowered by some type of legal mechanism which allows or requires the cost of the penalty to be spread among various designated individuals.
If these conditions are met, then to this extent this particular crime is subsidized relative to other crimes that could possibly be committed but which are not similarly subsidized.
This argument does not depend on the intent of the legal system. It is an argument about the unintended effects of the legal system.
As far as I can see, this is entirely a “formal” argument, that is correct simply by definition. And it is an argument that correctly describes the situation to which it is applied, if the situation fits the assumptions of the argument.
My take is that corporate liability laws may cause an “imbalance” of crime in society by unintentionally subsidizing various crimes, based on the case history of penalties for specific corporate crimes committed in the past. A person familiar with the case history, or familiar with the general state of corporate law, could easily find those corporate forms, companies, and activities, where the personal gain he might accrue by pursuing criminal activity would be most highly subsidized by spreading the cost of committing the crimes among shareholders via the corporate liability laws.
This argument may exist somewhere already. I don’t claim that it is original. But I do believe it is a powerful argument that needs greater attention.
my case is fairly simple against current corporations. most people don’t like large corporations because they pay off the state to subsidize them and cripple their competitors. regulatory bureaucracies are not elected and have a sufficient amount of job security. they create statutes that carry the power of law. these statutes are immensely more complex than any single human could consistently comprehend. they are also vague and plentiful. thus, the regulatory apparatus can be used to supervise nearly any business, find or create some statute that can be construed to prohibit that firm’s behavior, then impose costs or burdens on them until they fail. Large corporations for the most part escape the same regulations, with the exception of anti-trust. Thus, it becomes popular to have 2-3 big corporations dominate any field.
I’m not convinced by that standard explanation; that the state sanctioned it and thus it came into being. It seems to me that it happened the other way around, that people pooled their capital then it was necessary to determine liability. The standard explanation hints at the belief that human interaction is enabled by the state, rather than the other way around. Its as believable as the statement, the state offered marriage licenses so people began to enter into marriages.
There is a distinction between a stock holder and a manager that deserves a difference in liability.
Perhaps, but as Adam Knott and meambobbo argue above, perhaps not. Currently, the managers (and especially the silent shareholders) bear practically zero criminal liability, the net result of which is that some amount of crime goes unpunished.
Because the moral hazard of “distributed costs and concentrated benefits” is well-enough known (or ought to be), where a tort is caused by a “corporation” through one or more of its agents/employees/etc., (in these cases costs are borne almost entirely by the victims), the ex ante knowledge of the organization’s potentially obscuring structure is reason enough to question the motive of any group of persons entering into such an arrangement.
What I’m saying is: As long as there are no torts, then do whatever you want. But if there is a tort claim against the corporation, we have to presume that the managers/shareholders/etc., were aware of the agency/responsibility problem, and therefore they ought to be liable, too. If this “cost” is too much of a burden for them, I don’t give a damn: let them make other use of their investments, capital, etc.