A respectable amount of my time today (yesterday, actually, but I want to say “today” because I haven’t slept yet) was taken up by a discussion of corporate limited liability with Stephan Kinsella. A stray mention of the topic in blog comments set us off on that tangent via e-mail. This blog post is my effort to edit those emails into a coherent dialogue that can be referred to when discussing this topic in the future.
Kinsella: I just think arguments against “the corporation” based on the idea of limited liability are confused and wrongheaded.
Spangler: Only because you insist on conflating contractually limited liability (which left-Rothbardians don’t oppose) with limited tort liability granted by the state incorporation charters you claim to oppose.
Kinsella: I am not conflating them. It’s the other way around: when you guys oppose corporations based on their limited liability features, your arguments would apply equally to a free market version of it. That’s why they are flawed.
Spangler: No, I would have no objection to a joint stock company formed on the freed market with no statist grant of limited tort liability. You might be confusing my position with someone else’s. I don’t know.
I will review my position on this matter below to make an accurate critique more convenient for you.
Tort liability limitation can’t be accomplished contractually. Said liability can be contractually distributed among contracting parties ahead of time prior to a tort being brought against them as a group (that’s what liability insurance does, after all). You can NOT, though, contractually limit the rights (such as the right to pursue compensation for tortious damages) of people who are NOT parties to your contracts. I could, for example, write contracts all day specifying what you supposedly owe me and it wouldn’t do me any good if you never sign them. You can’t contractually limit the right of others to pursue compensation for tortious damages because that right is not yours to bargain away.
The corporate form is illegitimate because it depends on state granted tort liability [limitation] that is itself illegitimate. We know this because even the state recognizes business forms that don’t possess limited tort liability. Owners in partnerships and sole proprietorships face FULL tort liability that corporate stockholders are shielded from BY DEFINITION.
You may be aware that your own state of Texas recognizes and charters joint stock companies without granting them limited liability. I have no objections to Texas JSCs. They’re seldom used precisely because the unjust state grant of privilege in a grant of limited tort liability is valuable.
Kinsella: [Edited: rephrased for brevity and clarity] Most of what you’ve said is elementary and boring. My point is that shareholders usually should not be vicariously responsible in the first place for employee torts. When did I say you objected to joint stock companies?
Spangler: You said, Stephan that “…your arguments would apply equally to a free market version of it”.
My position is that your statement is inaccurate because THERE IS NO free market version of “it” where “it” is the statist privilege of limiting someone’s right to pursue compensation for tortious damages.
Possession of that privilege, AS A MATTER OF DEFINITION, distinguishes corporations from JSCs, general partnerships and sole proprietorships.
With regard to your statement that shareholders should not be able to be sued for employee torts, I have to ask…
First, do you extend that as well to employee torts for employees of general partnerships and sole proprietorships?
Second, if you DO, I would have to ask if you don’t see that as a rather extraordinary claim and wonder if you’d like to elaborate on it a bit.
Third, if you DO NOT, I’d have to ask why.
Fourth, how exactly do you propose to systematically disallow suits against people in a non-monopolized court system? The entire premise of our theory of law is that people with disputes will [tend to] seek arbitration rather than going to war. If you somehow arbitrarily disallow arbitration from even occuring between certain categories of disputants with real disputes, do you not see this as potentially unwise?
Kinsella: What I meant is that the typical criticism of limited liability is NOT restricted to its being granted by the state. It’s assumed that the shareholders should be liable in the first place. Why should they be?
[first question] — Well, I am not sure. I don’t think much good work has been done on this from a sound libertarian perspective. It seems to me that the first thing we know is the tortfeasor is liable, and he alone, unless we have sound libertarian grounds to attribute vicarious responsibilty to someone else. I am not even sure I agree with respondeat superior. I think the burden is on he who argues that a third person is responsible for the torts of another. You have to show how and why, in each case, whether it be managers, co-workers, vendors, stakeholders, creditors, customers, directors, investors, or shareholders.
[second question] — Why is it extraordinary that I do not automatically accept the state doctrine of respondeat superior and vicarious responsibiltiy?
[third question] — I’ve adumbrated on this many times. I wrote a whole view of my frameowrk of causation and responsibility, which is how I would start. But to start we need a sound understanding of rihgts, causation, and the way corporate an business law works.
[fourth question] — I am simply saying that if A sues C for a tort committed by B, A will need to show why C is vicariously responsbile for B’s tort. If he can’t, then he can only sue B. I’m contending that A won’t be able to prevail if he sues C, in most cases, if C didn’t commit the harm.
Spangler: As near as I can determine, when asking about whether or not shareholders ought to be liable for employee torts, you could ONLY say they ought not if you succeed in defending a claim that…
1) Firms are not property
-or-
2) We are not liable for damages caused by our property
You appear to be asserting that de facto limitation of tort liability could be achieved by means of consensus in the arbitration industry to never hold business owners liable for employee-committed torts.
Given that the doctrine of respondeat superior is not mere statist legislation but has relatively deep roots in the common law tradition, I find this argument lacking. I reserve the right to change my mind if you suddenly get a whole lot more convincing, though.
Kinsella: Property does not cause damage. People cause damage.
Spangler: Pets are property. If my dog bites you, do you sue me or my dog?
Kinsella: Let’s think of a general rule shall we, instead of trying to find intuitive common law rules you like and trying to inductively piece them together? The dog example is irrelevant since it has will and is not inanimate.
Spangler: The misbehaving dog analogy is relevant precisely because the dog has a
degree of agency, as do misbehaving managers in a firm that the owners don’t exercise adequate oversight over.
Kinsella: Ha ha! That’s kind of paternalistic, to assume a manager is like a dog owner. Hmm, wonder why no one ever sues the manager for torts committed by their doglike underlings?
Spangler: No, the stockholders collectively are like the dog owner. The manager is like the dog.
Kinsella: But why hold the shareholders responsible for torts of company management? Shareholders are passive after all.
Spangler: Why wouldn’t passivity with regard to oversight of your property that then results in damages to innocent others not be considered negligence?
Kinsella: Why do you call it their property? Just because the state classifies them this way? If I own shares in Wal-Mart, can I use one of their trucks or go into HQ without permission?
Spangler: I believe you’ve recently claimed that Kevin Carson’s assertion that corporations are essentially unowned property is “hogwash”? Which is it? Do shareholders own the company or not?
Kinsella: They have some rights of control. Others have other parts. It’s distributed and complex. Sorry. But of course it’s not unowned.
Spangler: Within the narrow confines of the libertarian non-aggression principle, I’m okay with complexities of contractually delegated control. That’s not what I’m talking about.
The company is property.
It is not unowned, as you acknowledge.
It has owners.
Those owners are shareholders.
Owners of property are responsible for their property.
Negligence by property owners is always legitimately actionable.
Restraint of such action in the form of grants of limited tort liability are statist privilege.
Contrasting the complexities of implementing collective control with the individual control of a single owner (as you have attempted to do) is not relevant to that point.
Kinsella: The company is not really property. The various things “it” owns are property.
You say that the owners of a company are its shareholders, but Ownership is the right to control. Who has the right to control FedEx’s fleet of trucks? Is it the shareholders? The directors? The managers? Drivers? It’s distributed.
You contend that Owners of property are responsible for their property, but that is merely an assertion on your part. Furthermore, use of A’s property by B to commit a tort is not necessarily “negligence” on A’s part.
Don’t you see how many assumptions your whole chain of reasoning is built on? You want to resort to what you take are a few easy, incontrovertible cases, even though you don’t have a coherent libertarian theory. WE need one. Until then, your case is not proven.
The framework I would recommend approaching this with is my piece on Causation and Responsibility with Tinsley. I think it’s a messed up area of law — messed up by statist doctrines and assumptions; we have to carefully rejuvenate and restore it.
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And there you have it. I find Kinsella unconvincing, but perhaps I’m just intellectually stunted. I have promised to give consideration to his work on causation, but I am (ironically) perhaps more “conservative” in my reliance on common law as a time-honored set of heuristics that Kinsella seems entirely to cavalier about tossing aside in my opinion. I am reminded of Proudhons remarks on the anarchist as conservative.
You can find Stephan Kinsella’s related blog post here at this link.
