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[SnowDog]

And to SnowDog, being able to sue someone into bankruptcy for an honest mistake is a problem itself, and holds no bearing on the theory I described.  The problems you mentioned exist regardless, and merely result in the death of a corp instead of a bankruptcy of an individual.

I have to disagree, respectfully. Under your proposal, the owner(s) of a corporation would be personally liable for their corporate bankruptcies, and for lawsuits directed toward the corporation.

Craig (Houston)

[LaissezFaire]

Under a libertarian system of justice, employees of companies could also be sued (e.g. if the UPS man runs over your dog, do you sue the owners of UPS or the driver?  the point is that you could sue a live person, and not a piece of Governement-printed paper).  

And why couldn't there be contracts set up that held management/employees personally responsible for lawsuits/debt? Why couldn't the owners sue management or employees for any lawsuit/debt brough upon them?

All a libertarian justice system needs is some INDIVIDUAL to be held responsible (only humans act, corporations are pieces of paper).  The internal struture that evolves in a free market to be most prominent will be the one that is most marketable.  

It is fun to speculate about, free market firms may be structured like corporations or may be set up as partnerships.  Who really knows?

[Madison]

Removing government support _also_ lowers available capital.  Just because something makes it more difficult to run a business doesn't mean that it is anti-business.

Yes, Removing government support for business lowers available capital, however the vast majority of capital comes from non-government sources.  I believe, government restrictions do more to limit business than any support provided.  You'll get no argument here that government should not be involved in business.

I question the right of the government to grant limited liability in the first place.  That limited liability creates an artificial level of security for the investor, which is why capital is increased in this situation.  

The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.    - Amendment X to the Constitution of the United States

Since corporations are State Entities, they have the RIGHT to create these entities.  The debate could revolve around whether the States should have the ability to create corporations

But should we abandon our libertarian ideals for the benefit of maintaining artificially high levels of capital?  

However, once again the article who's address I posted above ameliorates most of my concerns and shows how the limited liability construct can be market-driven, rather than state-driven, and that it _is_ a feasible system within libertarian ideals.

When the pursuit of the best gets in the way of the better nothing tends to happen.  I have read Mr. McCracken's article, and I agree with virtually all of his assumptions along with his conclusion.  Following his argument to it's natural conclusion, one of two paths will be followed. The vast majority of investors will become creditors, thus limiting their risk (along with their potential return), or some enterprising company will offer liability insurance, along with a certification (similar to the Incorporated title).  End result - Limited Liability Corporations.  

Article IV Section 1 of the Constitution states "Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof” Therefore, until all 50 states decide that they should not be in the business of creating Corporations the FSP will have to deal with out of state corporations doing business with whatever the chosen state is.  Or should the chosen state restrict the ability of out of state corporations to do business within it’s borders?

Bottom Line - From where I stand I would prefer to focus time and energy on methods to bind the Federal and State governments to their constitutionally authorized roles before we begin to establish a Libertarian Utopia.  This is what I thought the FSP was attempting to do...

[maestro]

Madison, you are correct in pointing out that I mistakenly asked for the constitutional justification of corporations.  I should have asked about the _libertarian_ justification.  Also I was not attempting to set FSP agenda here, but merely arguing a philosophical question about corporations.  I would have asked it in a different part of the forum, but since the issue was raised here, I'll argue it here.  Also, it appeared to me that McCracken was speaking in support of incorporation, and given his arguments, I find the idea to be much more reasonable.

SnowDog, I realize that under our current tort system, the liabilities could be ridiculous, but I argue that the tort system is a separate issue that must be resolved independently.  Perhaps fixing the tort system is a prerequisite, but problems in the tort system will not be _caused_ by removing the limited liability corporation system.

[SnowDog]

SnowDog, I realize that under our current tort system, the liabilities could be ridiculous, but I argue that the tort system is a separate issue that must be resolved independently.  Perhaps fixing the tort system is a prerequisite, but problems in the tort system will not be _caused_ by removing the limited liability corporation system.

I think we're on different pages. If you remove limited liabilty from corporations, then the owners of the corporations will be liable for lawsuit judgements against the corporations. This is not the way it is now.

Craig (Houston)

[maestro]

I think we're on different pages. If you remove limited liabilty from corporations, then the owners of the corporations will be liable for lawsuit judgements against the corporations. This is not the way it is now.

Craig (Houston)

I'm saying that the owner _should_ be liable for lawsuit judgements, but that we figure out some way to get rid of the current problem of frivolous lawsuits flying everywhere.  if the lawsuit is just, and is based on some wrongful act on the part of the company, that the owner was aware of and ignored, then the owner should be responsible.

[nomad]

Ok, let's see if I can keep up with responses - to be honest I didn't expect this question to take off like it has but the result is, IMHO, excellent!

First, I need to go back and qualify what viewpoint my questions/comments are coming from. I do not belive it is possible to have a free society under our current form of government in any way, shape, or form - that statement has nothing to do with our Constitution. Our current government and Constitution are two separate beings at this point in time. My original question was posed with the assumption of a new and independent entity/society entirely separate from our current one.

On the issue of incorporation, having the state be involved in granting charter is against the concept of a "free" market.

Jason -

"No, that's not really true.  The government regulated them because the government likes regulation, and politicians like to demagogue against "evil corporations."  Of course there have been abuses, but these can be handled by the tort system if they are truly cases of violations of rights."

Not our current tort system - unless you plan on giving tort law a whole new identity and purpose.  You cannot "fine" a multi-national, multi-billion dollar corporation into compliance - unless you plan on allowing insane levels of monetary compensation to be handed out. Lawsuits against these large corporations are a way of doing business.  They pay their fine, pass the cost onto consumers or stock holders, and keep on going without batting an eye. That's business under limited liability.

"The market system is the only effective way to discipline corporations."

If it were only that easy.

"When corporations pursue their business honestly, as most of them do, they generate huge benefits for the economy."

Do they benefit the economy - or themselves? When corporations such as Nike spend $5 on labor and material in a third world country and then sell their product for $100 in a first world country - who benefits? Certainly not the first world country.. Nike is the ultimate beneficiary with the third world country coming in way down the line a very meager second.

Your concept of a free market regulating everything necessitates a closed economy - reality says otherwise.

"What's your alternative: socialism?"

First, I have not been sarcastic with you - I expect the same measure of respect in return.

I must say though - dumping the responsibility of corporate regulation on the tort system (as they both currently function) would be a very close cousin to socialism - only a different branch of the government would be taking from the rich and giving to the poor.

"Err, a better question is, How could banning a stock market be compatible with a free society?  The stock market is a wonderful example of free trade in action."

Is it really free trade in action? Here is a question for you: The market has lost a few TRILLION dollars over this past year - where has the money gone? Money, once created, does not just disappear - it has to go somewhere. What's happened to it?

Was the stock market designed to build capital - or strip it?

JD

[LaissezFaire]

Here is a question for you: The market has lost a few TRILLION dollars over this past year - where has the money gone? Money, once created, does not just disappear - it has to go somewhere. What's happened to it?

This is a common economic misconception.  I will attempt to explain, but I would suggest checking a good book on Austrian Economics sometime.  I would recommend _Economics for Real People_ by Gene Calahan (http://economicsforrealpeople.com), which is both easy to read and very relevent.

To answer your question, the stock market does not trade money, it trades pieces of ownership (equity).  Like all markets, stocks have PRICES, which are a neat way we measure someone's valuation of something (what they were willing to pay).  

In your example, money didn't dissapear, it was just people's valuation of those stocks decreased LOWERING THE PRICE.  People perhaps prefered money markets or savings accounts or paying off debt.  The money didn't cease to exist, it was simply transfered to somewhere else.  Hope this helps answer your question.

[Madison]

Is it really free trade in action? Here is a question for you: The market has lost a few TRILLION dollars over this past year - where has the money gone? Money, once created, does not just disappear - it has to go somewhere. What's happened to it?

The stock market does not create money, so to answer your specific question, the money was never created, so it couldn't be lost.  The more general question regarding the wealth that was seemingly created and lost during the the past market cycles is more complex.  The wealth is not created until a stockholder exchanges their shares of stock for cash.  So if I invest $10 in a share of stock, then the stock rises to $100, and then falls to $8 and I sell, I have lost $2 not $92.  I don't know how we can begin to measure the actual wealth lost over the last year, and that is before we begin to include those investors that shorted stocks...

[JasonPSorens]

On the issue of incorporation, having the state be involved in granting charter is against the concept of a "free" market.

Not really, because as others have pointed out (including the McCracken article referenced), the charter is just recognizing a voluntary private relationship that has already arisen.

Do they benefit the economy - or themselves? When corporations such as Nike spend $5 on labor and material in a third world country and then sell their product for $100 in a first world country - who benefits? Certainly not the first world country.. Nike is the ultimate beneficiary with the third world country coming in way down the line a very meager second.

Nike benefits everybody.  1st world consumers apparently enjoy paying $100 for a pair of shoes (note: a lot of this cost comes from tariffs, which are rather high on footwear), and 3rd world workers enjoy better conditions & wages working for Nike than under subsistence agriculture.

"What's your alternative: socialism?"

First, I have not been sarcastic with you - I expect the same measure of respect in return.

It wasn't a sarcastic question.  I'm really curious as to the proposed solutions.  Utopia is not an option, so we need to compare alternatives.

I must say though - dumping the responsibility of corporate regulation on the tort system (as they both currently function) would be a very close cousin to socialism - only a different branch of the government would be taking from the rich and giving to the poor.

The difference is that redistribution would not be undertaken for its own sake, but to compensate victims for actual harms.  Using the law to discipline thieves isn't a close cousin to socialism in my book.

Is it really free trade in action? Here is a question for you: The market has lost a few TRILLION dollars over this past year - where has the money gone? Money, once created, does not just disappear - it has to go somewhere. What's happened to it?

The stock market does not consist of money.  It consists of ownership shares.  Ownership shares fluctuate in value, just like everything else in the world.  Gold holdings can decline in value in terms of fiat currency exchange values, but that doesn't mean that somehow, "money has disappeared."

Was the stock market designed to build capital - or strip it?

Research in economics has shown that countries with deep stock markets raise more capital for private industry and enjoy higher economic growth rates.

[nomad]

Hmm - I know this thread has gotten a bit long and does not necessarily go with the "basics" here - but I think there needs to be an extremely thorough discussion of it for the concept of FSP - where the money is, there the power lies. Our civil rights, country, and economy are in the mess they are because of it.

To answer your question, the stock market does not trade money, it trades pieces of ownership (equity).  Like all markets, stocks have PRICES, which are a neat way we measure someone's valuation of something (what they were willing to pay).  

In your example, money didn't dissapear, it was just people's valuation of those stocks decreased LOWERING THE PRICE.  People perhaps prefered money markets or savings accounts or paying off debt.  The money didn't cease to exist, it was simply transfered to somewhere else.  Hope this helps answer your question.

McGrath/Madison - I understand what you are saying but I believe there is more to it than that.  When you purchase stock in a company you are ultimately giving your money to that entity as business capital. The total combined value of all stock is a large portion of the cash value of that company. When a stock rises for any reason, it increases the value of the company. (I'm using company, corp, entity interchangably for this response) The ammount of credit a company receives from a bank is directly related to their value - and companies borrow on this value - thus hard/electronic cash is created by the value of the stock. Corporations use the value of their stock at any given time as collateral for their credit lines.

In the case of your response Madison - when and if the company borrowed money when the stock was $100 - and then it crashes to $8 - yes you loose $2, the company looses $92, and the bank that lent the money walks away with the rest (whatever the loan ammount was per share). The company and it's stockholders are left to pay the bank. In this scenario the resultant effect would most likely be a bankruptcy. Money was created and siphoned off.

Another place to look as well is the derivatives market - that's a whole different subject.

Jason-

Not really, because as others have pointed out (including the McCracken article referenced), the charter is just recognizing a voluntary private relationship that has already arisen.

If government recognition is required - the government controls it. The government has the ability to grant, or not grant, the charter and it can attach any number of stipulations for recognition and issuance.

Nike benefits everybody.  1st world consumers apparently enjoy paying $100 for a pair of shoes (note: a lot of this cost comes from tariffs, which are rather high on footwear), and 3rd world workers enjoy better conditions & wages working for Nike than under subsistence agriculture.

Nike benefits itself. The consumer may enjoy the shoes - that is neither here nor there - what is important is the siphoning of capital out of the first world economy and into Nike's pocket and the third world country.

The capital outflow is used to create infrastructure in the developing country at the expense of the developed one - what's left after expenses fills corporate coffers.  This is why we have those tariffs - to stem the outflow of US capital.

This brings us back to the issue of responsibility. In an open world economy, multi-national corporations such as Nike have no responsibility to anyone but themselves. They take cash capital from the first world country and labor capital from the third world country and make one heck of a profit in the middle.  It's a pretty cool game.

It wasn't a sarcastic question.  I'm really curious as to the proposed solutions.  Utopia is not an option, so we need to compare alternatives.

You cannot tell me with a straight face there was no sarcasm in a comment like that coming from libertarian...  

The difference is that redistribution would not be undertaken for its own sake, but to compensate victims for actual harms.  Using the law to discipline thieves isn't a close cousin to socialism in my book.

The key point in my initial statement was "as they currently function". For your vision to occur, massive tort reform would be necessary and the "deep pockets" theory of litigation will still never be totally removed.  That brings me back to my statement,

You cannot "fine" a multi-national, multi-billion dollar corporation into compliance - unless you plan on allowing insane levels of monetary compensation to be handed out. Lawsuits against these large corporations are a way of doing business.  They pay their fine, pass the cost onto consumers or stock holders, and keep on going without batting an eye. That's business under limited liability.

Research in economics has shown that countries with deep stock markets raise more capital for private industry and enjoy higher economic growth rates.

Of course they do - they are all first world countries - there is no alternative to compare them to. Third world and first world "wannabe" countries do not have the capital to create the "economic engine". The old addage is true - it takes money to make money.

The question about the market still stands though.


JD

[JasonPSorens]

McGrath/Madison - I understand what you are saying but I believe there is more to it than that.  When you purchase stock in a company you are ultimately giving your money to that entity as business capital. The total combined value of all stock is a large portion of the cash value of that company. When a stock rises for any reason, it increases the value of the company.

Well, what matters even more than stock price is the volume of stock owned in the company.  A fashion design company may have a higher stock price than, say, McDonald's, but the total value of the company is much less.

If government recognition is required - the government controls it. The government has the ability to grant, or not grant, the charter and it can attach any number of stipulations for recognition and issuance.

These stipulations are typically minimal, fortunately.

Nike benefits itself. The consumer may enjoy the shoes - that is neither here nor there - what is important is the siphoning of capital out of the first world economy and into Nike's pocket and the third world country.

What do you mean by "siphoning of capital"?  Money is not capital.

The capital outflow is used to create infrastructure in the developing country at the expense of the developed one

What do you mean by "at the expense of"?

- what's left after expenses fills corporate coffers.  This is why we have those tariffs - to stem the outflow of US capital.

No, those tariffs exist because Nike lobbies for them.  Here's a case where big business and big government are bad together.  But eliminate big government and its tariffs, and Nike is benign.

This brings us back to the issue of responsibility. In an open world economy, multi-national corporations such as Nike have no responsibility to anyone but themselves.

Please define "responsibility" here.  If you're just saying that Nike operates for the benefit of its owners, that's true of every business, whether Nike or the corner store.

They take cash capital from the first world country and labor capital from the third world country and make one heck of a profit in the middle.  It's a pretty cool game.

It's great for consumers, it's great for growth, it's great for workers, it's great for shareholders.  Yes, it is pretty cool!

You cannot "fine" a multi-national, multi-billion dollar corporation into compliance - unless you plan on allowing insane levels of monetary compensation to be handed out. Lawsuits against these large corporations are a way of doing business.  They pay their fine, pass the cost onto consumers or stock holders, and keep on going without batting an eye. That's business under limited liability.

That's good, because we don't want big firms failing every day.  But firms maximize profit.  If they take a hit in court, they will resolve the problem that led to the hit.  You don't have to put firms out of business in order to get them to act honestly.

Research in economics has shown that countries with deep stock markets raise more capital for private industry and enjoy higher economic growth rates.

Of course they do - they are all first world countries - there is no alternative to compare them to. Third world and first world "wannabe" countries do not have the capital to create the "economic engine". The old addage is true - it takes money to make money.

Actually, a lot of NIC's (newly industrializing countries) have stock markets: Taiwan, South Korea, India, Chile.

[nomad]

Well, what matters even more than stock price is the volume of stock owned in the company.  A fashion design company may have a higher stock price than, say, McDonald's, but the total value of the company is much less.

I don't follow.  What does that have to do with my argument?? Comparison in size/value has nothing to do with my premice.

These stipulations are typically minimal, fortunately.

Again, what does that have to do with the argument that government does not belong in the business sector?

What do you mean by "siphoning of capital"?  Money is not capital. /// What do you mean by "at the expense of"?

Yes, and no. I am not using it in the traditional sense of being related to a specific business entity - but viewing an entire economy as a business - which it is.  I should have clarified myself in my first response.  An economy's value is based the total of it's hard (tangible) and liquid (monetary) assets. Money is liquid capital.

In a closed economy it does not matter where money is spent - it stays within and remains useful to it. In an open economy (such as ours) capital (money) can be stripped out and shifted to another.  When Nike takes money from our economy and shifts it elsewhere - we loose. They are not building our economy - not creating any real infrastructure here - it is shifted to the third world country - at our loss.  

No, those tariffs exist because Nike lobbies for them.  Here's a case where big business and big government are bad together.  But eliminate big government and its tariffs, and Nike is benign.

Please explain to me why Nike would lobby to create tariffs that take a cut out of their profit. I'd like to know why, and where you are getting this information.

Please define "responsibility" here.  If you're just saying that Nike operates for the benefit of its owners, that's true of every business, whether Nike or the corner store.

The corner store is a different critter - it reinvests into the economy from which it derives it's life - Nike, on the other hand, does not. This is what I mean in regards to responsibility. The corner store has a responsibility to the community in which it serves - it cannot survive without it - and if it grows it will benefit it. Nike, and all other multi-national corporations, do not have any responsibility to the community they serve - if they grow it does not benefit the community that supports it.

It's great for consumers, it's great for growth, it's great for workers, it's great for shareholders.  Yes, it is pretty cool!

Great for consumers - sure they get a pair of shoes that wear out in 6 mo. or a year.

Great for growth - sure Nike's portfolio looks great and more infrastructure is built in third world countries with money from ours.

Great for workers - sure if you think that child labor and subsistance wages are great.

Great for shareholders - I'll give you that one..

That's good, because we don't want big firms failing every day.  But firms maximize profit.  If they take a hit in court, they will resolve the problem that led to the hit.  You don't have to put firms out of business in order to get them to act honestly.

If you really believe this - study the history of Ford and a little explosive car they made called the Pinto...

Actually, a lot of NIC's (newly industrializing countries) have stock markets: Taiwan, South Korea, India, Chile.

And all of those countries you listed, maybe with the exception of India, are heavily subsidized and controlled by the US - any reflection they may show is because of our influence and money.


... And just because - here is a quote from Lord Chancellor Edward Thurlow in reference to corporations: "How can the beast have conscience with no soul to damn or hide to kick!"


JD

[SnowDog]

In a closed economy it does not matter where money is spent - it stays within and remains useful to it. In an open economy (such as ours) capital (money) can be stripped out and shifted to another.  When Nike takes money from our economy and shifts it elsewhere - we loose. They are not building our economy - not creating any real infrastructure here - it is shifted to the third world country - at our loss.  

How? When Nike sells shoes, they take US Dollars in Exchange, (or an intermediary does). Those dollars are only valuable in the US, so they ultimately come back to us, though not necessarily directly. Those dollars exist as claims on the wealth that is produced in the US. Ideally, they would burn the dollars, and then we would have the shoes, and get to keep our wealth. However, they'll probably buy something from us, causing an increase in our exports, and a decrease in goods available for purchase here.

I've heard the argument that we run an import/export deficit, importing more goods than exporting, but how can that be, unless we are exporting dollars overseas, with no repatriation? In either case, I don't see how imports hurt us at all.

Craig

[Eddie_Bradford]

Wow this is a great question that I've never thought of.  What gives corporations a right to limited liability?  Why does that exist and should it exist?  It's a tough question an if the answer involves regulations then we know that we're back on our way to a command and control economy.  I haven't read this whole tread so maybe I repeating something here but hopefully not.  If a corporation has only limited liability then it can raise a million dollars from evil investors make a product that gives people cancer 5 years down the road but it can make and sell the product for 3 years, get 5 million back and return that to investors and then when everyone gets cancer there's no money left to take.  The best solution to this I can think of to this is that the corporation will still be limited liability but also anyone within the company who made the decision and knew the information will be liable too.  So corporate charters should have a provision that they record in detail who makes what descion.  If 'nobody' made the decision then the liability should fall with the person who should have made the decisions.  Since everyone will be trying to cover their butts now I'm sure they will all keep records of what decisions they made.
I don't know sounds good to me what do you guys think?
-Eddie