Apparently the Dutch East India Company was the first chartered corporation. I looked it up yesterday to make the point you are making but found it an unsuitable piece of information to promote that end.
I agree.
Indeed, although to be honest, I haven’t considered that much. I’ll explain why in my next response to DZ.
Isn’t it a bit ironic that the first corporation was merchantilist?
But this is all predicated on the statist paradigm.
Free market incorporation would have to be done with contracts, and those would have to be voluntarily accepted by parties doing business with the corporation. No manager would want to take an action without his liability protected, and likewise shareholders would be inclined to the same (rather than allowing the manager to take risks they will have to be responsible for). Obviously, it wouldn’t be perfect and situations would arise where the firm creates a claim that was not under contract, which I suspect would bring in a particular form of insurance.
It occurs to me that firms may just choose to arrange all liability as a contract between shareholders and managers, and then that mitigates any need to get consent from each party the firm and it’s property interacts with.
Let’s remember, corporations are not synonymous with sole proprietorship and I think it is a mistake to assume that sole proprietorship is the defacto free market business model for more complex firms. Typically, corporations function as investment groups, gathering up large amount of capital through smaller contributions from a great many shareholders. Very few people start a corporation on Day 1 of beginning business. When the business is up and running, and in need of capital for expansion, that is when they typically incorporate and the sole proprietor takes on partners of varying degrees of ownership.
Also, in many firms, shareholders are managers and workers. The legal liability issues for corporation, are equally as important for communes, kibbutzes and worker councils.
I think we need to rethink the partnership model under the free market, because the corporation is an answer to a complex partnership model, and there too, shareholder/owners can be, but are not always, managers.
Not really. To do anything of any scope commercially under a monarchy, you had to get a monopoly. It’s been that way for centuries. A sole proprietor would likely have also had to get authority for a monopoly, but perhaps the corporate form was needed to accumulate enough capital to purchase such a title. Again, corporations are formed for TWO purposes. Limited liability AND to accumulate and organize ownership of large amounts of capital, made up of many much smaller investments.
I also want to say, I am interested in a free society. I am interested in tackling some of the technical issues with anarchy, as ethically I am already sold. I don’t have the time for the moralizing and demagoguery of Carson and Long (among many others). If we really want to see this thing through, I think it is incumbent on us to not just challenge the current paradigm, but come up with ideas and plans (to try) in a new one. Give our intellectual heirs something to build off, something to put into action.
So while I understand some people do not like corporations, I don’t think that matters. The questions we need to be asking are (1) do they serve a need that may emerge in a free market, and (2) is there a free market and ethical way to solve those problems, either by adapting the corporate form, or creating something entirely new.
Of course a corporation/co-operative/association could maintain some aspects of “limited liability” in a free market. I don’t disagree with this. But in practice the idea of strictly limited liability is farcical.
Yes, I am willing to assume away, or otherwise concede that contractual arrangements (adhesion contracts and all the other warts) could maintain some semblance of limited liability in a free market, but…
The problem is, as you indicate, when a claim is made by someone who has not contracted with the organization. These instances, few as they may be, are really the crux of the issue, and in these instances, the idea of strictly limited liability (i.e., limited to what assets the “corporation” declares to own qua corporation) is a joke.
I thought about the insurance angle on my way to work this morning, and although it sounds satisfactory at first, it raises yet another question: would this sort of occurrence really be an insurable risk?
There are certainly some risks which would not be insurable, for which the insurer would reject/deny the claim, at which point the managers/owners/employees/etc. would be obligated to bear the full financial burden. How they (among and between themselves) decide to pool this risk ex ante is of no concern to me, but if the damages are for example $1M and the “corporation” only has $500k, I think it’s an abomination to not garnish the remaining $500k from the stakeholders.
Not necessarily although I am perceiving the limits now as being internal to the firm, not external to its relationships with 3rd parties.
Good point. I am just riffing this morning. I have to get to work myself. Working from home, there is too much temptation to ramble on forums all day, and then suck breadcrumbs and dishwater for my evening meal. [;)]
Right, and this was my second proposal. That perhaps they would arrange 100% of risk responsibility internally between shareholders with different degrees of investment and managers. So the managers may accept some responsibility by taking the job, and that would be part of their salary negotiation. This would put a real damper on the cost efficiency of a corporation, because the manager would have to be compensated in return for sharing in risk without an investor’s share of profits. But it would still allow for capital formation from multiple sources to occur.
Another problem is that, in a really free market, why would a customer agree to a limited liability clause.
Suppose there are two banks. Suppose Bank A and Bank B are both warehouse receipt banks. Bank A offers a limited liability clause in its deposit contract. Bank B has no such clause. Suppose they otherwise offer identical terms. Which bank would get your deposit?
Suppose Bank A offers lower fees than Bank B. If this is true, then obviously this is because you are risking the loss of your deposit in Bank A.
Similarly, suppose you walk into a restaurant and the waiter made you sign a limited liability agreement before serving you. You’d view this with suspicion, wouldn’t you?
Limited liability is a State-granted perk. When you limited liability incorporate, you aren’t contracting with your customers, you’re contracting with the State.
Limited liability incorporation doesn’t occur in a free market.
Also in a free market, limited liability incorporation won’t protect you when you injure a non-customer. Suppose you own a factory that pollutes. You can’t just declare bankruptcy and default on your obligation to clean up your pollution.
People agree to them when sending children on school trips. People agree to them when they go into amusement parks. People agree to them when signing pre-nuptials. It’s a matter of contract, not one of state exclusively.
This is true. But it doesn’t necessarily protect you when you injure someone outside the current contractual (state) regime either. England treats corporations differently than America does. When an American company creates damages or loss in Britain, that is handled by the court in that jurisdiction, and no terms of American limited liability are guaranteed to be held over in the UK. So even now, incorporation isn’t absolute limited liability say if a firm in Detroit pollutes the air in SW Ontario.
These examples, FWIW, are all adhesion contracts. They are by no means bulletproof from a legal POV.
Do you want to take my life savings because I have 1000 UPS shares? Fuck that!
What kind of idiot buys shares of stock in a corporation? Gold is a better investment.
Yes, in a free market, you can’t be partial owner of a business without taking full responsibility for losses. Otherwise, such arrangements allow owners and management to shirk repsonsibility.
Imagine if AIG/GM/FRE/FNM/BS/LEH shareholders were personally liable for the loss. Do you think that the management would have been allowed to rack up such huge debts?
Perhaps you ought to be more careful about who you give your money to?
I think Quasibill’s Hypothetical is appropriately on-topic for this discussion. If you invest your money with a criminal - even if you don’t know he’s a criminal - aren’t you at least partially responsible?
Jeremy responds to Quasibill in the comments:
If A didn’t have enough information to trust B with his property, he should not have hired him. There’s no “free market rule book” that says a voluntary society must make all transactions between anonymous individuals viable.
Gold was a great investment from 1982 - 2002, while stocks were terrible.
If you are in the RIGHT stocks at the right time, you will always outperform gold. Productive investments outperform money or speculative trading in the long-run.
If you bet on black or red at the right time, you will always win playing roulette.
The structure of the gold/silver market is changing. There is valid reason to believe that future performance will be different from past performance. In the 80s and 90s, central banks were selling/leasing their gold reserves, pushing down the price. They’ve nearly exhausted their gold reserves, limiting their ability to manipulate the market.
Also, stock in a corporation is not a productive asset. The corporation earns profits. However, you also have to pay the salary of the CEO, the bonuses for executives, and all the corporate waste. As a small shareholder, you can’t prevent the CEO from ripping you off by giving himself and his friends huge salaries.
Of course, you’re free to throw away your savings in the stock market if you choose. That makes the price of gold cheaper for intelligent investors!
They are not. They are no different than terms of service or a warranty. They are limited liability, and built into the price of the product. If you’re going to adopt the “free market adhesion” argument, you’re one degree away from “bossism” and that will cause a lot of stress in our flourishing friendship.
Nothing is bulletproof from a legal point of view. And they don’t have to be. They are simply examples of the market trying to contract limited liability. No incorporation or state influence is necessary, we’re talking about private contracts.
Why would you?
agreed, but that’s not the only reason the price fell. consumer price inflation decreased, taxes were reduced, and people sold their gold to buy stocks, which began a bull market.
not so sure about that. do you have a reference?
Corporate stock is partial ownership of a company that buys certain things and transforms them into more useful things. That’s all I meant. The labor of CEO’s is part of the input. If major shareholders decide to pay him more than what he produces, either become a major shareholder and dock his pay or fire him, or dump your stock and buy a competitor’s.
Gold is generally not transformed. Most people find they make more money by producing things than by simply trading them.
You do realize at one point gold was money, yet people still found it logical to part with their gold in order to gain corporate stock? You seem to be saying that gold is always a better investment than business ownership, yet business ownership makes profits in terms of gold…
I don’t know what “bossism” is…
TOS, shrinkwrap agreements, warranties, etc. are textbook examples of “adhesion contracts”, by which is meant: they are drafted by one of the parties with zero input from the other parties. They are offered unconditionally, there is no negotiation, no give-and-take, etc.
Accordingly, courts have routinely ruled that in the event of a dispute, where the terms of such agreements are ambiguous, the ruling goes in favor of the party that did not draft the contract (probably 90% of the time or more, according to one of my professors). But ambiguosity isn’t a necessary condition: about every other year (maybe more frequently, IDK), some kid gets blasted in the dome by a hockey puck or a baseball, or some kid gets trampled at a concert - and despite the “agreements” printed in 4pt font on the back of the ticket, judgments usually go in favor of the plaintiff.
Many of these agreements even say that you agree to hold the counterparty harmless even for things like fraud or gross negligence. Clauses like these are inserted into adhesion contracts regularly, although they do deter frivolous lawsuits (by increasing the costs thereof) in practical terms, they are unenforceable.
These examples are constructive, IMO, because they demonstrate that even in the current, distorted market, where contracts and agreements of this sort are very prevalent, these contracts simply don’t hold up under scrutiny.
Which is not to say that there is anything wrong per se with adhesion contracts. In fact they have benefits like lowering transaction costs, standardization/commoditization, etc., etc.
I think you are really splitting hairs here. Also doesn’t address pre-nups.
See, the validity of a contract in a free market, from my perspective, was whether it was entered into voluntarily. I don’t care if it is an agreement to spend the day in murder park (statist courts would not support that) or to perform sexual acts on network TV with a koala bear (statist courts probably would not support that). I also don’t care who drafted it. When I compare alarm clock A and B, I am not just judging their appearance or their price, but also their warranty. That’s a part of the package, just as extended warranties are 3rd party contracts to add value to an existing contractual obligation.
Negotiation and contractual “give and take” are not necessities of a free market or a libertarian society. Actors give and take by electing to purchase a good (and its package deal terms) or not.
Statist courts. Remember I’m arguing for these contracts as they would be used and enforced where arbitration is spelled out in advance, in a polycentric legal order.
Contract is not strictly upheld. We have a monopolistic legal order and all sorts of restrictions on the right to contract.
No, there isn’t. In fact, it would be nearly impossible to scale out a business, if every transaction had to be negotiated individually. That’s the sort of anti-commerce lunacy a politician would legislate. Not to mention, that when a seller prices an item that’s also an adhesion contract. Most items are not negotiable price wise at the retail level.
That’s good. Really.
Looks like we ended up with a conflation argument anyway. At least it has been more worthwhile than the previous one by the “big guns”.