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Thread: Limited liability in a free market society...

  1. #61
    Quote Originally Posted by Bohner View Post
    Such as?
    Having property owned in the name of a company.

    Quote Originally Posted by Bohner View Post
    The argument for marriage in the free market is that is basically a contract between two consenting parties.
    Same thing with corporations.



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  3. #62
    Quote Originally Posted by Bohner View Post
    Doesn't really change anything though. There's more of an incentive to bankrupt a company and squeeze every penny you can out of it before hand if

    1) You know you aren't personally liable for the debt.
    2) The creditors can't go after you personally for every penny you squeezed out of the company before the bankruptcy.
    Again, why would a bank loan money to such an entity? What's in it for the bank?

  4. #63
    Quote Originally Posted by Bohner View Post
    How is a state sponsored entity compatible with the free market? Marriage in it's current form certainly isn't.
    A state entity is not. But corporations and marriages don't have to be state entities. If they weren't state entities, that doesn't mean that such things would not exist. Your phrase "in its current form" is pretty important, in the case of corporations as well as marriages.

    And I don't really see how this is an answer to my question. Who are some of the economists you've read who believe that corporations are incompatible with a free market?
    Last edited by erowe1; 12-02-2012 at 07:43 PM.

  5. #64
    Quote Originally Posted by hazek View Post
    I think it's a mistake to say either way would happen, I think such a market would see both and in the end a market strictly regulated by it's consumers i.e. a free market would favor the better of the two, or invent a third.

    The problem is right now we don't have a choice because there's just too much danger in risking your personal assets.
    The market can't give rise to legal immunity. The market is completely and wholly separate from any legal or governing entity and, in its purest form, has nothing to do with government. Of course, as we have seen, the government certainly can stick its hands in the market, but not the other way around, so it's impossible for the market to give rise to legal immunity just by market forces alone. The market can only give rise to voluntary actions. Nothing in the legal system is voluntary in principle.
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  7. #65
    Quote Originally Posted by erowe1 View Post
    Having property owned in the name of a company.
    That would fall under limited liability.

    Quote Originally Posted by erowe1 View Post
    Same thing with corporations.
    Not really... Because even those harmed by the corporation, who never signed any kind of agreement, is not able to go after the string pullers who is ultimately responsible for the negligence, since the courts recognize the corporation as a person. Therefore, it was the corporation who committed the negligent act, and not the string puller.

    Quote Originally Posted by erowe1 View Post
    Again, why would a bank loan money to such an entity? What's in it for the bank?
    Interest on the loan.

    Quote Originally Posted by erowe1 View Post
    A state entity is not. But corporations and marriages don't have to be state entities. If they weren't state entities, that doesn't mean that such things would not exist. Your phrase "in its current form" is pretty important, in the case of corporations as well as marriages.
    It's more about the limited liability that wouldn't exist. But without limited liability, there really isn't any reason to incorporate to begin with.

    Quote Originally Posted by erowe1 View Post
    And I don't really see how this is an answer to my question. Who are some of the economists you've read who believe that corporations are incompatible with a free market?
    I saw a couple of debates and articles on Mises. I forget the names.

    Doesn't really matter though... I'm not here to turn this into a debate based on an appeal to authority.

  8. #66
    Quote Originally Posted by erowe1 View Post
    And you don't think it would continue to exist in a free market?
    I actually don't. The Catholic Church was the government in centuries past in Europe. All of its doctrine was spawned from obedience to the church -- not to God -- and tithing, which served as taxation. Everything the Catholic church is now is a result of its status in the past. Very little has changed. It may be hard to get rid of now, but the organization isn't a legitimate free market child.
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  9. #67
    Quote Originally Posted by osan View Post
    Corporate personhood... a different matter. Personhood as today practiced in law is also pure crap, but if we are to have corporations then certain aspects of human rights should apply to them. Police should not be able to waltz into a corporate office and seize, say, documentation without due process. That sort of thing would likely damage an economy - set in chaos in fact. We know police cannot be trusted, and therefore this protection should remain... in part.
    Good post. On this issue there are two things I would change, the first being a ZERO CONFLATION law. Corporate personhood, as it were, is never, ever to be confused with individual personhood, despite the fact that some rights, powers, privileges, etc., may be common to both. So to begin with:

    1) Two entirely separate sets of laws: one for corporations, another for free and natural individuals. And ne'er the twain shall be conflated. You can NEVER have one law that applies to both. In such a case, there must be two separate laws, which would eliminate even the need for disambiguation.

    Then, if there is a constitutional challenge by individuals, over actual unalienable rights, an obnoxious or unconstitutional law really can be nullified and stricken--not held up and left on the books because it MIGHT apply to corporations and others. But it would be stricken from that set of laws only. Corporations would have to issue their own separate challenges if the same law existed on their books -- and could not appeal in the same way, or on the same grounds.

    2) Most Favored Nation status for Citizens. No corporate power, right, privilege, exemption, benefit, entitlement or advantage of any kind may be given to corporations that does not automatically apply to each and every free and natural Citizen. In other words, no artificial advantage to being a corporation, and no artificial disadvantage for being a free and natural Citizen.

    Advantage: free and natural Citizens (at all times)

  10. #68
    Quote Originally Posted by idiom View Post
    I am just picturing running a multi-billion dollar organisation out of a personal account.

    All revenue is income, profit doesn't exist? So taxation is at the maximum personal rate on the whole revenue not on profits?

    Help me out, I use accounting books to prop up tables...
    Couldn't you just set up a joint account and have your accountants manage it?
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  11. #69
    Quote Originally Posted by Bohner View Post
    No... They check your credit, and maybe require you to put down some assets as collateral. Maybe raise the interest rate if they view your loan as a risky one.

    Doesn't really change anything though. There's more of an incentive to bankrupt a company and squeeze every penny you can out of it before hand if

    1) You know you aren't personally liable for the debt.
    2) The creditors can't go after you personally for every penny you squeezed out of the company before the bankruptcy.
    If a loan is risky, doesn't raising interest rates on the loan only make it more risky? I'm not sure why a bank would do that.
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  12. #70
    Quote Originally Posted by PaulConventionWV View Post
    I actually don't. The Catholic Church was the government in centuries past in Europe. All of its doctrine was spawned from obedience to the church -- not to God -- and tithing, which served as taxation. Everything the Catholic church is now is a result of its status in the past. Very little has changed. It may be hard to get rid of now, but the organization isn't a legitimate free market child.
    I don't agree. But even if so, I'd ask the same question about every other kind of church, synagogue, club, and corporation of every kind. The idea that these things wouldn't exist without the state somehow creating them doesn't make any sense to me.

  13. #71
    Quote Originally Posted by PaulConventionWV View Post
    If a loan is risky, doesn't raising interest rates on the loan only make it more risky? I'm not sure why a bank would do that.
    Because it's less likely that the principal will be recovered. This is why (other things being equal) borrowers with poor credit histories pay higher interest & those with good credit histories pay lower interest.
    Last edited by Occam's Banana; 12-02-2012 at 08:43 PM.
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  14. #72
    Quote Originally Posted by Bohner View Post
    Such as?
    Extremly decreased transaction costs. An economy without corporations wouldn't work very well. And corporations, as contractually created entities that can only voluntarily transact with other persons or entities, are absolutely possible in a free market. Even limited liability is totally compatible with free markets, as long as any contract partner knows about the liability status. This is obviously only true in cases of damage against contract partners, not against third parties.

    In cases of damage against third parties the actual human person responsible for it would have to pay the compensation. However, this is largely already the case.

    There are even cases, where the current form of liability might actually help third parties. Think about the Deepwater Horizon accident. If only the responsible managers would be liable for damage, they could never pay compensations worth billions of Dollars.

    The argument for marriage in the free market is that is basically a contract between two consenting parties. The court only needs to recognize the contract between the two (or more) parties, and not necessarily the marriage itself.

    The difference with a corporation is that the courts recognize it as a legal person, regardless of whether or not a contract was in place with the people harmed. One of the key free-market principles is that you are responsible for your actions. A corporation is basically a state-sponsored entity that effectively removes this responsibility.
    I agree that limited liability should not extend to people never agreeing a contract. However, that is by far not the only benefit of a corporation. Corporate personhood can also exist without limited liability in such cases.

    Multi-national corporations are the most efficient form of organization for some forms of production. That's a great thing. And that would be absolutely impossible without any form of corporation.

    How is a state sponsored entity compatible with the free market? Marriage in it's current form certainly isn't.
    Which doesn't mean that no marriage is compatible with free markets.



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  16. #73
    What are peoples thoughts on 2 individuals (or companies) coming to a mutual agreement of limited liability?

    What if I, as a businessman with a product only sell my product to people with the clause that by purchasing said product, they are limited in the amount they could sue me for?

    Is that not free market? Individuals are free not to purchase said product and if they do, they have agreed to a certain amount of liability placed with the seller/producer.

    If we DONT allow that type of contract, do we have a free market?

  17. #74
    Quote Originally Posted by Danan View Post
    In cases of damage against third parties the actual human person responsible for it would have to pay the compensation. However, this is largely already the case.
    When they do sue the corporation, rather than the actual human responsible, it's because of the amount of money they can get out of the corporation. Are we supposed to think that in addition to suing the human responsible, and the corporation the human works for, the plaintiff should be able to go after all of the corporation's shareholders?

  18. #75
    Quote Originally Posted by thoughtomator View Post
    Limited liability is an invitation to fraud, as Bain demonstrated so skillfully.
    Why do I care that Bain-type entities takes apart failing companies in the most profitable manner again? I keep forgetting. What fraud was committed, exactly?

    And in fact, why do we keep using Bain as an example, when there are literally hundreds of companies that do the same thing? This sounds like a liberal talking point.

    I've read the whole thread, and haven't seen anything that changes my mind about corporations and LLCs. I have no problem with the fact that corporations exist, I think they are necessary, and I think the problem is, as always, government.

  19. #76
    Quote Originally Posted by Acala View Post
    Not so simple because NOBODY owned it. No real human being ever owned the business itself.
    That's wrong. A group of individuals owned it. People who screech about corporations are, in my imho, saying that people shouldn't be legally allowed to join together for the purpose of engaging in joint business ventures.

  20. #77
    Quote Originally Posted by Acala View Post
    You could do all of that with partnerships - except the immortality part.

    I don't have a problem with this kind of contract as long as it specifies that the "corporation" is really just shorthand for the owners who are bound by the contract per its terms. But there must be some obligations on real human beings or there is no contract.
    Ownership is exchanged for cash. That's the contract. Corporate executives go to jail for fraud on a fairly routine basis, and the profits of the owners are reduced by fines, fees and penalties on a routine basis. Obligations met.
    But how can a corporation own real property?
    So people can't own property jointly?

  21. #78
    Quote Originally Posted by angelatc View Post
    Why do I care that Bain-type entities takes apart failing companies in the most profitable manner again? I keep forgetting. What fraud was committed, exactly?

    And in fact, why do we keep using Bain as an example, when there are literally hundreds of companies that do the same thing? This sounds like a liberal talking point.

    I've read the whole thread, and haven't seen anything that changes my mind about corporations and LLCs. I have no problem with the fact that corporations exist, I think they are necessary, and I think the problem is, as always, government.
    I believe there are some pretty bad ways of how corporations are currently handled by government.

    However, I believe bankruptcy laws are were the real problem lies. Those laws do nothing but protecting debtors and screwing lenders. And that's true for corporate bankruptcy as well as for private bankruptcy (at least where I live, and I believe it's pretty much the same everywhere in the industrialized world).

  22. #79
    Quote Originally Posted by CT4Liberty View Post
    What are peoples thoughts on 2 individuals (or companies) coming to a mutual agreement of limited liability?

    What if I, as a businessman with a product only sell my product to people with the clause that by purchasing said product, they are limited in the amount they could sue me for?

    Is that not free market? Individuals are free not to purchase said product and if they do, they have agreed to a certain amount of liability placed with the seller/producer.

    If we DONT allow that type of contract, do we have a free market?
    That is fine. The problems begin when the government creates non-liability as the default without consent. Here's one of the reasons why the giant corporations of today could not exist without the government non-liability mandate:

    When you buy stock in a corporation, you rely on being insulated from anything the corporation does. You rely on the government-created corporate shield limiting your losses to just the amount you invested. The stock is easy to buy and easy to sell. No liability passes to you when you buy it and when you sell it, the buyer doesn't need to woory about buying into a lawsuit or any other liability headaches. This creates an anonymous international market where literally hundreds of millions of people who don't know each other and don't know anything about the business can partake of profits without out being responsible for what the corporation does to get those profits.

    In short, because stock holders never have to worry about being responsible for what the corporation does, the corporation can raise vast amounts of money without too many questions being asked. It can then use that vast capital to dominate small business and others in the marketplace.

    If, on the other hand, limited liability had to be negotiated with each party with whom the corporation did business, the owners of the corporation would have to take an interest in what the corporation was doing because the chances are that it would not get the waiver right every time if it got very big. That would limt the market in corporate shares.

    And this is only dealing with contracts, not torts. When you buy stock in a corporation now, you don't need to be concerned with being sued by someone when a corporate driver runs over a pedestrian. But no contractual limit of liability can contain accidental injuries caused to others.

    Ownership without responsibility is far easier to sell than ownership WITH responsibility. That is the purpose of the corporate business form - to allow people to control vast amounts of other people's money.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

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  23. #80
    Quote Originally Posted by erowe1 View Post
    When they do sue the corporation, rather than the actual human responsible, it's because of the amount of money they can get out of the corporation. Are we supposed to think that in addition to suing the human responsible, and the corporation the human works for, the plaintiff should be able to go after all of the corporation's shareholders?
    If the organization pays the settlement out of the coffers, the shareholders are paying.

    But I think it's ridiculous to assert that if a newly hired truck driver has a traffic accident driving the company truck that I could be personally sued because my mutual fund invested in shares of that company. When I invested, I in essence agreed that I might lose a piece of the profit if someone running the company does something horrible, or even accidental. I also in essence agreed to pay for insurance against that scenario through the company.

    But if I only bought $10,000 worth of stock, no way should my entire portfolio be in jeopardy because I happen to have one.



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  25. #81
    Quote Originally Posted by Acala View Post
    That is fine. The problems begin when the government creates non-liability as the default without consent. Here's one of the reasons why the giant corporations of today could not exist without the government non-liability mandate:

    When you buy stock in a corporation, you rely on being insulated from anything the corporation does. You rely on the government-created corporate shield limiting your losses to just the amount you invested.
    Absolutely. I also rely on the corporation to carry insurance to cover such losses on my behalf.

  26. #82
    Quote Originally Posted by angelatc View Post
    That's wrong. A group of individuals owned it. People who screech about corporations are, in my imho, saying that people shouldn't be legally allowed to join together for the purpose of engaging in joint business ventures.
    The business itself - land, factories, goods, gross income, contracts - is NOT owned by the individuals. It is owned by the corporation, which is a separate legal entitiy. No living human being has any direct legal interest in the business itself. Individuals DO have an ownership interest in the corporate entity.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  27. #83
    Quote Originally Posted by angelatc View Post
    Ownership is exchanged for cash. That's the contract. Corporate executives go to jail for fraud on a fairly routine basis, and the profits of the owners are reduced by fines, fees and penalties on a routine basis. Obligations met.
    So people can't own property jointly?
    People can own property jointly. No problem with that. But when they do, they have all the responsibilities of ownership.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  28. #84
    Quote Originally Posted by Danan View Post
    I believe there are some pretty bad ways of how corporations are currently handled by government.

    However, I believe bankruptcy laws are were the real problem lies. Those laws do nothing but protecting debtors and screwing lenders. And that's true for corporate bankruptcy as well as for private bankruptcy (at least where I live, and I believe it's pretty much the same everywhere in the industrialized world).
    In bankruptcy, lenders (bondholders, banks and vendors) get first dibs, after payroll obligations. Stockholders (owners) are last on the list of people who get anything.

  29. #85
    Quote Originally Posted by Acala View Post
    People can own property jointly. No problem with that. But when they do, they have all the responsibilities of ownership.
    So corporations pay taxes, they carry insurance, they build on their property, they might rent their property....no problem.

  30. #86
    Quote Originally Posted by angelatc View Post
    Absolutely. I also rely on the corporation to carry insurance to cover such losses on my behalf.
    Really? I am willing to bet that you don't even know which corporations you have money invested in, let alone whether or not they have insurance. If you have a pension, it is likley invested in a large number of corporations. Do you have any insurance? Insurance companies are among the largest institutional investors in the stock market so you are invested there. Are you invested in mutual funds? I'll bet you can't list their investments.

    The limit on liability allows for widesprfead stock ownership with no oversight by the owners.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  31. #87
    Quote Originally Posted by angelatc View Post
    If the organization pays the settlement out of the coffers, the shareholders are paying.

    But I think it's ridiculous to assert that if a newly hired truck driver has a traffic accident driving the company truck that I could be personally sued because my mutual fund invested in shares of that company. When I invested, I in essence agreed that I might lose a piece of the profit if someone running the company does something horrible, or even accidental. I also in essence agreed to pay for insurance against that scenario through the company.

    But if I only bought $10,000 worth of stock, no way should my entire portfolio be in jeopardy because I happen to have one.
    Of course you LIKE being on the side where you are protected from liability. Wait until you have been injured by a corporation with no assets. Professionally, I have to deal with shell corporations all the time. They have nothing in the way of assets or insurance. And it is legal.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  32. #88
    Quote Originally Posted by angelatc View Post
    So corporations pay taxes, they carry insurance, they build on their property, they might rent their property....no problem.
    For reasons previously stated, government-created corporations are a BIG problem and would not exist in their current form in a free market.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton



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  34. #89
    Quote Originally Posted by Acala View Post
    The business itself - land, factories, goods, gross income, contracts - is NOT owned by the individuals. It is owned by the corporation, which is a separate legal entitiy. No living human being has any direct legal interest in the business itself. Individuals DO have an ownership interest in the corporate entity.
    There is no such thing as a tangible business in that context. Corporations exist to engage in business. Corporations own assets, and shareholders own those assets because they are the owners in the corporation. Corporations are only a set of pre-fab legalities designed to expedite a myriad of routine issues that arise with ownership by multiple individuals.

  35. #90
    Quote Originally Posted by Acala View Post
    For reasons previously stated, government-created corporations are a BIG problem and would not exist in their current form in a free market.
    NO they are not the problem, and they absolutely would exist in a free market. In fact, they would be more common, because the SEC would not regulate who was eligible to invest and trade.

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