The Left-Rothbardians, Part I: Rothbard
(posted by Kevin Carson)
In “Libertarianism: What’s Going Right,” I mentioned Left-Rothbardianism as one possible basis for finding areas of agreement between market libertarians and the Left. I’d like to go into that in more depth now.
In 2004, I was extremely heartened by the “Era of Good Feelings” between the Libertarian Party’s Michael Badnarik and the Green Party’s David Cobb. It gave me some hope for the revival of an even more hopeful project of some 30-odd years before.
During the late 1960s, Murray Rothbard attempted a strategic alliance of the “isolationist” and comparatively antistatist Old Right with the New Left. That period is the subject of an article by John Payne, “Rothbard’s Time on the Left.” Payne writes:
By the early 1960s, Rothbard saw the New Right, exemplified by National Review, as perpetually wedded to the Cold War, which would quickly turn exponentially hotter in Vietnam, and the state interventions that accompanied it, so he set out looking for new allies. In the New Left, Rothbard found a group of scholars who opposed the Cold War and political centralization, and possessed a mass following with high growth potential. For this opportunity, Rothbard was willing to set economics somewhat to the side and settle on common ground, and, while his cooperation with the New Left never altered or caused him to hide any of his foundational beliefs, Rothbard’s rhetoric shifted distinctly leftward during this period.
I would add one qualification, concerning what Payne said about Rothbard setting economics to the side. In fact, as we will see below, Rothbard shared some common economic ground with the New Left. At his leftmost position, Rothbard’s Austrian critique of corporate-state capitalism was quite radical.
In the late ’50s, according to Payne’s account, Rothbard found himself at odds with W.F. Buckley and Frank Meyer at the National Review. His submissions on foreign policy, in a period when he saw the “war-peace question” as key to the libertarian agenda and referred to the “Verdamte cold war,” were rejected. Finally, in 1961, Meyer publicly read him out of the “conservative movement” (or at least out of National Review’s fusionism).
From the early ’60s on, Rothbard found himself increasingly attracted to the left-wing revisionist critique of 20th century state capitalism (or what the New Left called “corporate liberalism“). He was especially struck by the thesis of Gabriel Kolko’s book The Triumph of Conservatism, which came out in 1963.
Rothbard’s Misesian critique of the corporate state, which shared so much common ground with the New Left, was a considerable departure from Mises’ right-wing political affinities. For Mises, state interventionism was motivated almost entirely by anti-capitalist sentiment: what Nixon would have called the “filthy f**king hippies,” or Eric Cartman would dismiss as “a bunch of G*ddamn tree-hugging hippie crap.”
Rothbard, on the other hand, applied Austrian principles largely from the standpoint of Kolko’s critique, which saw state interventionism as motivated mainly by the desire of corporate capitalists themselves to protect their profits from the destructive force of market competition. Kolko directly contradicted the orthodox historical account of the regulatory state, as exemplified by the liberal Arthur Schlesinger, Jr. Specificially, he denied that the Progressive Era legislative agenda was formulated primarily as a populist restraint on big business, or that government had intervened in the economy in the 20th century as a “countervailing force” against big business. Rather, the regulatory state was an attempt by big business to achieve, acting directly though the state, what it had been unable to achieve through voluntary combinations and trusts carried out entirely in the private sector: the cartelization of the economy, and the creation of stable oligopoly markets characterized by administered pricing. Payne quotes this summary statement from Kolko’s book:
Despite the large number of mergers, and the growth in the absolute size of many corporations, the dominant tendency in the American economy at the beginning of this [the twentieth] century was toward growing competition. Competition was unacceptable to many key business and financial interests. . . . As new competitors sprang up, and as economic power was diffused throughout an expanding nation, it became apparent to many important businessmen that only the national government could rationalize the economy. Although specific conditions varied from industry to industry, internal problems that could be solved only by political means were the common denominator in those industries whose leaders advocated greater federal regulation. Ironically, contrary to the consensus of historians, it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.
The purpose of state action was, first of all, to help overbuilt industry simultaneously to operate at full capacity and to dispose of the surplus product it couldn’t sell at cartel prices. Second, as an alternative, it was to enable cartelized industry to operate with high costs and idle capacity and still remain profitable by selling its product at cost-plus markup through monopoly pricing. (This might as well have been the mission statement of FDR’s National Industrial Recovery Administration, by the way.)
This initial perception by Rothbard, that New Left revisionist historiography was useful for a free market critique of twentieth century corporate capitalism, led to a considerable amount of cooperation with New Left scholars.
Rothbard participated in Studies on the Left, a project of New Left historians James Weinstein and William Appleman Williams. It was Weinstein, in The Corporate Ideal in the Liberal State, who coined the term “corporate liberalism.” And Williams devised the thesis of “Open Door Imperialism” to describe American foreign policy. Some of Rothbard’s contributions to Studies on the Left were included in a paperback collection of articles resulting from the group’s efforts through 1967: For a New America.
Rothbard retained friendly ties to the scholarly New Left long after his disillusionment with the radical student movement. His second venture in collaborative scholarship (at the comparatively late date of 1972) was A New History of Leviathan, a collection of critical essays on New Deal corporatism coedited by Rothbard and the libertarian socialist Ronald Radosh.
He contributed one article (”Confessions of a Right-Wing Liberal“), in 1968, to Ramparts. (Both David Horowitz and Ronald Radosh, who both later became two of the most odious members of a neoconservative movement characterized by its odiousness, were associated with this leading periodical of the New Left.)
Rothbard founded the journal Left and Right in 1965 as a vehicle for this academically oriented Left-Right alliance. If you’re at all interested in this kind of things, browsing the archives there will well repay your effort.
From his initial scholarly collaboration with New Left academics, Rothbard moved on to attempt a mass movement in alliance with student radicals.
The high point of this alliance occurred in 1969. The radical libertarian/anarchist caucus of the Young Americans for Freedom walked out of the YAF convention in St. Louis (mainly over the Vietnam War and the draft). The roots of the contemporary libertarian movement, and most of its founding personnel, can be traced to this act of secession. Not long afterwards, Rothbard (along with Karl Hess, a former Goldwater speechwriter who coined the phrase “extremism in defense of liberty,” and subsequently moved considerably to the left) organized a mass meeting of the YAF’s libertarian dissidents with similar libertarian socialist secessionists from the SDS. During that event, Hess addressed a combined audience of YAF and SDS insurgents wearing combat fatigues and a Wobbly pin.
Rothbard’s journal The Libertarian Forum was founded in 1969, at a time when Rothbard was becoming increasingly disenchanted with the New Left, and the New Left itself (and specifically the SDS, under onslaught from the Maoist Kool-Aid drinkers in Progressive Labor and the nihilist nutcases in the Weather Underground) was disintegrating. Although Rothbard could get along pretty well with New Left academics, he apparently suffered considerable culture shock in 1969 at finding out just how radical the student radicals really were (their blanket denunciations of academic economists and the wearing of neckties were a particular affront to Rothbard, who was guilty on both counts). Nevertheless the first volume of Libertarian Forum was packed with heady commentary on the New Left alliance.
Take, for example, this quote from the May 1, 1969 issue:
[The students] see that, apart from other tie-ins, corporations have been using the government schools and colleges as institutions that train their future workers and executives at the expense of others, i.e. the taxpayers. This is but one way that our corporate state uses the coercive taxing power either to accumulate corporate capital or to lower corporate costs. Whatever that process may be called, it is not “free enterprise,” except in the most ironic sense.
Consider also this statement by Hess:
The truth… is that libertarianism wants to advance principles of property but that it in no way wishes to defend, willy nilly, all property which now is called private.
Much of that property is stolen. Much is of dubious title. All of it is deeply intertwined with an immoral, coercive state system which has condoned, built on, and profited from slavery; has expanded through and exploited a brutal and aggressive imperial and colonial foreign policy, and continues to hold the people in a roughly serf-master relationship to political-economic power concentrations.
Libertarians are concerned, first and foremost, with that most valuable of properties, the life of each individual…. Property rights pertaining to material objects are seen by libertarians as stemming from and… secondary to the right to own, direct, and enjoy one’s own life and those appurtenances thereto which may be acquired without coercion….
This is a far cry from sharing common ground with those who want to create a society in which super-capitalists are free to amass vast holdings and who say that that is ultimately the most important purpose of freedom….
Libertarianism is a people’s movement and a liberation movement. It seeks the sort of open, non-coercive society in which the people, the living, free, distinct people may voluntarily associate, dis-associate, and, as they see fit, participate in the decisions affecting their lives…. It means people free collectively to organize the resources of their immediate community or individualistically to organize them; it means the freedom to have a community-based and supported judiciary where wanted, none where not, or private arbitration services where that is seen as most desirable. The same with police. The same with schools, hospitals, factories, farms, laboratories, parks, and pensions. Liberty means the right to shape your own institutions. It opposes the right of those institutions to shape you simply because of accreted power or gerontological status.
In another article in the same issue, “Confiscation and the Homestead Principle,” Rothbard proposed a model of privatization far removed from the kind of corporate looting of state assets you commonly find advocated in mainstream libertarian venues these days.
What most people ordinarily identify as the stereotypical “libertarian” privatization proposal, unfortunately, goes something like this: sell it to a giant corporation on terms that are most advantageous to the corporation. Rothbard proposed, instead, was to treat state property as unowned, and allowing it to be homesteaded by those actually occupying it and mixing their labor with it. This would mean transforming government utilities, schools and other services into consumer cooperatives and placing them under the direct control of their present clientele. It would mean handing over state industry to workers’ syndicates and transforming it into worker-owned cooperatives.
But if this was the appropriate way of dealing with state property, Rothbard asked, then what about nominally private industry which is in fact a branch of the state? That is, what about “private” industry that gets the majority of its profits from taxpayer subsidies?
But if Columbia University, what of General Dynamics? What of the myriad of corporations which are integral parts of the military-industrial complex, which not only get over half or sometimes virtually all their revenue from the government but also participate in mass murder? What are their credentials to “private” property? Surely less than zero. As eager lobbyists for these contracts and subsidies, as co-founders of the garrison stare, they deserve confiscation and reversion of their property to the genuine private sector as rapidly as possible. To say that their “private” property must be respected is to say that the property stolen by the horsethief and the murderer must be “respected.”
Such factories should be taken over by “homesteading workers,” he said. But he went further, and suggested that a libertarian movement, having captured the commanding heights of the state and proceeding to dismantle the apparatus of state capitalism, might actually nationalize such state-subsidized industry as the immediate prelude to handing it over to the workers. He went so far as to say that even if a non-libertarian regime nationalized state capitalist industry with the intention of hanging onto it, it wasn’t anything for libertarians to get particularly bent out of shape about. The subsidized industry was no more the “good guys,” and no less a part of the state, as the formal state apparatus itself. “…[I]t would only mean that one gang of thieves–the government–would be confiscating property from another previously cooperating gang, the corporation that has lived off the government.”
I’d go Rothbard one further. Why is the criterion for de facto government status the amount of profits directly subsidized from state revenue? What about corporations that function within a web of state regulatory protections, and artificial property rights like Bill Gates’ “intellectual property,” without which they couldn’t operate in black ink for a single day. Anyone who’s read much of my work for any length of time knows that I consider the entire Fortune 500 a pretty good proxy for such de facto branches of the state. As I already argued in an earlier post, the largest corporations are so intertwined with the state that the very distinction between “public” and “private” becomes meaningless.
To reinforce that impression, bear in mind that (as Hess’s remarks above on property suggest) Rothbard considered all land titles not traceable to a legitimate act of appropriation by human labor to be utterly null and void. That meant that titles to vacant and unimproved land were void, and all such land in the United States should be open to immediate homesteading. It meant all the real estate in Southern California currently held as real estate investments by the railroads, pursuant to the land grants of the nineteenth century, should immediately become the absolute freehold of those currently making rent or mortgage payments on it. It meant that all the land in the Third World currently “owned” by quasi-feudal landed oligarchies should immediately become the property of the peasants working it; and land currently being used by corporate agribusiness and other cash crop operations, in collusion with those same landlords, should be returned to the peasants who were evicted from it.
In short, Rothbard didn’t exactly fit the “pot-smoking Republican” stereotype you see the commenters over at Kos regurgitating.This is getting way, way long. I originally intended to fit all the Left-Rothbardian material into one post. But I’ll save the material on Rothbard’s left-libertarian successors (Sam Konkin, Joseph Stromberg, and the rest) for another post.
April 1st, 2008 at 1:15 am
I would say I am somewhere at the nexus between Agorism (Rothbard/Konkin) and Anarcho-liberalism(De Jasay). However, that’s not always been the case. Having come to libertarianism as a teenager from reading Rand and Friedman, I was once a believer in libertarian-conservative fusionism(centered around the Chicago School). That’s been beat out of me now.
The one thing you didn’t delve into about Rothbard was his inexplicable association with Pat Buchanan in the early 90s, the “paleo-libertarian” period. Lew Rockwell disowns that term now, for good reason, given the demagogic rhetoric that has been unearthed from that period. The latest Reason Mag edition had a compilation of some mind-boggling quotes from Rothbard and Rockwell during that period, for example Rothbard praising Joe McCarthy and writing stuff like “cops must be unleashed and allowed to adminster instant punishment.” Or Rockwell thinking out loud in the LA Times about banning people from owning video cameras because of the taping of the Rodney King beating. I’m not even to go into the Paul Newsletters.
April 1st, 2008 at 1:34 am
Thanks for the comment, ka1igu1a. I didn’t get much into Rothbard’s thought after he drifted rightward because it’s not really important to my purpose. As far as I’m concerned, he was at his peak around 1970. Just about every contribution of significance came from him by the 1970s, or has been developed by one of his left-Rothbardian followers. What he came to in the ’90s, with Rockwell and Ron Paul and all that, was just an embarrassment. Even reading his review of the New Libertarian Manifesto (printed in Strategy of the New Libertarian Alliance), it was clear that of the two Konkin was by far the more relevant and engaged. I can only imagine how Rohbard would have reacted to something like the NLM in (say) 1968, but it surely would have been more positive and enthusiastic.
April 1st, 2008 at 3:58 am
Rothbard always had a “law and order” streak that was a bit odd for a libertarian, even going so far as to defend Nelson Rockefeller’s (ugh!) repression of the Attica uprising. And that was during Rothbard’s New Left phase.
In defense of Rockwell, whatever his take on the Rodney King thing, his site and blog have carried many, many articles and posts criticizing police brutality and other civil liberties abuses over the years. A lot of these paleo types got a reality check in the 90s with Waco, Clinton/Reno, the Brady bill, Randy Weaver, asset forfeiture laws and started moving away from the “cops can do no wrong” mentality associated with sectors of the American Right.
In defense of Ron Paul, he made opposition to US foreign policy the centerpiece of his campaign, and he has the track record from his time in Congress to back it up. Also, he stated on television that his first act as Prez would be to pardon federal drug offenders. Pretty radical stuff coming from Republican presidential candidate.
In defense of Pat Buchanan, I used to despise him as a Reaganaut stooge back in the 80s, but he’s come around to a full blown Old Right non-interventionist foreign policy position. The fact that he defies popular conservative opinion on this to the degree that he does merits some respect, IMO.
I do agree Rothbard was at his best during his New Left phase, despite my strong dislike for much of what the New Left evolved into. Speaking of which, Bill Kaufmann has an interesting interview with Carl Oglesby, a libertarian SDSer, for Reason.
http://www.reason.com/news/show/124941.html
I have to say that anyone who can claim to be a libertarian and voice respect for Madam Hillary has to have his head at least part of the way up his ass.
April 1st, 2008 at 7:37 am
Keith:
In terms of Paul, I was an an early supporter and contributed financially to his campaign. i did become critical when it became apparent that Paul’s advertising campaign (targeting SocialCons) absolutely betrayed the libertarian message he used to raise the money. Then he just essentially walked away. A major letdown, but then again, never trust any politician.
In terms of Rockwell, i read LRC daily. The only major point of disagreement, which has been discussed on Freedom Democrats, is LRC’s hostility to non-religious, cultural libertines.
In terms of Buchanan, there is no defense. Buchanan’s own website has a Ron Paul news section. Buchanan knows damn well Paul’s association with Rockwell and LRC. Rockwell is an anarchist and spits out more anti-american rhetoric in a week than Jeremiah Wright probably has in a lifetime, and yet to watch Buchanan on MSNBC , and his own self-righteous indignation over Obama’s association with such “anti-americanism” is laughable. It would be great entertainment if someone over there had the wherewithal to actually call him out on it.
April 1st, 2008 at 10:58 am
I am for the most part ignorant on Rothbard and most of the nuances of libertarian thought. Most liberterians that I bump into, not necessarily on the internet, but in person–are much more likely to align themselves with the political right than their local IWW branch.
The case you make, for what is in effect, redistribution, is an interesting one. I have had many a conversation in which I have argued for the moden day version of “40 Acres and mule” as a solution to many of the socioeconomic inequalities that pervade society. Of course, the initial response that it sounds like communism–but in many respects it is equally “Lockean.”
Part of the diffuculty is that, at least in the US, the language of Lockean liberalism and individual rights has been so coopted by the defenders of state-monopoly capitalism and framed in such nationalistic ways that it is often difficult to get past one’s definition of terms.
An acquaintance of mine who considers herself a libertarian and who I know regularly peruses the Mises website (and disturbingly FrontPage), will go to the mat to defend “free markets” and rail against (usually leftist) “intellectual indoctrination” but without ever considering that what she is defending is an artificial creation of bureaucratic planning by the private/public partnership and therefore she no less indoctrinated than any liberal. Basically, she uncritically buys into the rhetorical flourishes without considering the source and the larger picture that surrounds it.
My question is (which I believe this board was in part erected to answer)–does this dog hunt? Is there a critical mass of left-Rothbardians that can have in impact?
With a parting shot on Buchanan–he’s a Republican Party strategist, always has been, always will be. Although he may wander off the Republican Ranch from time to time, it is invariably to lasso the wandering cattle that might get rustled by the Democrats.
April 1st, 2008 at 11:27 am
Keith,
Thanks for the link to the Oglesby interview. What really strikes me about Buchanan’s New Right phase is that he seems to be insisting to the end he’s always been at war with Oceania. He calls now for turning from neocon interventionism and back to a Reaganite “conservative” foreign policy, refusing to acknowledge that the New Right from the ’50s on was almost as interventionist as the neocons now (just not quite as crazy). Paul Craig Roberts has the same failing.
Goffchile,
That’s the problem with a mainstream libertarian movement that for so long took up the burden of defending corporate power in terms of “free market principles.” There are a lot of people out there who think they’re in favor of just that, but really (as you say) just buy into the “rhetorical flourishes.”
I don’t know exactly what the point of critical mass is, but I think we can reach it. The ideas are being diffused within both mainstream libertarianism and mainstream liberalism to an extent greater than probably in many decades. And not just by the left-Rothbardians (I’m not one myself); the “corporation as enemy of the free market” meme is being spread by a diverse array of movements.
April 1st, 2008 at 12:22 pm
Yeah, as recently as 1989, Buchanan was defending the US invasion of Panama (not exactly a serious Cold War issue).
I think Roberts and Buchanan both are under the delusion that their preferred Buckleyite-Reaganaut interventionism was somehow different from that of the Neocons. In their view,the New Right was anti-communist, a good conservative cause, whereas the Neocons are revolutionary democratists, a shameful Jacobin-Wilsonian cause.
In other words, it’s a question of petty ideological differences that are more cultural in nature than anything else.
I will have to say in Roberts’ defense, as Venus Cassandra recently pointed out, Roberts is starting to sound awfully like Noam Chomsky these days.
April 1st, 2008 at 6:51 pm
A very interesting post. Those Hess quotes are great.
April 1st, 2008 at 7:15 pm
The full text of Karl Hess’ “The Death of Politics” is available here:
http://fare.tunes.org/books/Hess/dop.html
April 1st, 2008 at 8:10 pm
If the “corporation as enemy of free market” meme is spreading, that’s not necessarily a good thing. I agree with the spirit of what is meant there. The currently existing “free market” is not a free market in many meaningful senses. But blaming that on “the corporations” is wrong-headed. (All corporations, by necessity? Which ones?) The problem is less the form of economic organization (the corporate form) that the forms of “property” *any* economic actors–whether individual, or collective in partnerships or “corporations”–are allowed. Those controversial forms of property include private holding of the natural means of subsistence (land, etc.); perhaps intellectual property; etc. We need to get the underlying property regime right. Once we do there’s no reason to think that organizing ourselves in corporations is necessarily a bad way to go. (Nor necessarily is so organizing ourselves now.)
As for Rothbard, I’m glad to have read this post and the comments. I need to give his earlier works a chance. A major weakness of mine (one I have in mind someday to earnestly confront, but not today) is hesitance to delve into the thought of thinkers whose judgment I don’t trust. From what I’ve heard of Rothbard’s pandering to ugly parts of the Right later in my career, I just don’t trust the man’s judgment. I know I shouldn’t let that stop me from giving his earlier work a chance, but, well, it does.
April 1st, 2008 at 8:15 pm
Haha… needless to say I meant “his” career, not mine! …. oops.
April 1st, 2008 at 9:03 pm
Brutum Fulmen,
I was using “corporation” not so much in reference to the corporate form as such, but more as shorthand for the dominant corporations–Fortune 500 types–in the existing economy.
As to the corporate form itself, it might well be possible to organize something like it by voluntary contract. But IMO the state ought to get out of the business of providing an automatic procedure for establishing them.
April 1st, 2008 at 11:11 pm
Kevin, Thanks for the clarification. You are right to insist as you do elsewhere that when we condemn “free markets” we must be clear about what precisely we’re condemning. I am baffled that you so frequently and loosely condemn “the corporations” without making it clear what precisely about “the corporations” you object to. I think it does a real disservice to clear debate. Now, surely shorthand is forgivable here and there. You want to use “corporation” as shorthand for “Fortune 500 types”. Fine. But of what “type” are Fortune 500 corporations? Is a Fortune 500 corporation as such (i.e., by virtue of its meeting Fortune’s criteria) an enemy of the free market? Of course not. Gross revenue as such is not inimical to free markets. Perhaps you want to say that it is improbable that a corporation could attain a certain level of gross revenue without having engaged in certain kinds of wrong acts that harm others. (I use “harm” as a relevant benchmark because I assume as a libertarian you believe in Mill’s harm principle, that the state may only limit the freedom of people when doing so is necessary to avoid harm to others.) If so, what are those harmful acts? Are they acts that only corporate (not individual) actors could engage in? Are they acts that a corporation qua perpetually existing collective entity enjoying limited liability is especially positioned to engage in? If “no” and “no” you have no problem with corporations, you have problems with certain harmful acts (such as seeking enforcement of “intellectual property”). If so, please decry those harmful acts and especially the aspects of the legal system that allow them; not “the corporations”.
April 1st, 2008 at 11:19 pm
Oh reading what I just posted I must say it’s a bit preachy, making more of the matter than it probably needed to. If so, sorry. It just drives me nuts when people blame “the corporations” for the world’s ills when they seem to really have in mind problems with the property regime that allows actors corporate and individual to do things they shouldn’t be able to do.
April 1st, 2008 at 11:31 pm
No problem, Brutum. But I think in most cases people who use “corporation” and “corporate” in a pejorative sense are referring to big business rather than the corporate legal form as such, and they’re generally understood to be doing so. For the most part I think the kind of oligopoly corporations making up the Fortune 500 are a pretty good proxy for what neo-Marxist James O’Connor called the “monopoly capital” sector: oligopoly firms in cartelized markets, with some kind of administered pricing system. It’s a bit like referring to “the landlords” in (say) 1480 or so, with the political context assumed.
April 1st, 2008 at 11:59 pm
Perhaps you’re right. Perhaps some people do really have oligopolies in mind when they denounce the “corporations”. If so, they should denounce “the oligopolists”! But I don’t think everyone has oligopolies in mind. The “abolish corporate personhood” movement is opposed to the corporate form as such. Their efforts are, in my view, very counterproductive and are fueled by talk against “the corporations”.
April 2nd, 2008 at 8:45 pm
Thanks for the mention! Keith. And keep up the good work, Kevin. I am enjoying reading your posts on here. I can’t wait until your next book comes out.
Do you still plan to put out a revised edition of your first one? I remember you mentioning that on the LeftLibertarian2 list.
April 2nd, 2008 at 10:50 pm
Thanks, Venus. I have vague plans of putting out a second edition of MPE, to the extent of saying I’ll *probably* do so after I finish the org theory book.
Brutum,
I think you’re right on the corporate form to some extent. But the issue of the general argument they’re making against the corporate form is complicated by the question of the extent to which that form, especially entity status and limited liability, is a form of statist privilege. Some of them, on the left, would like a return to special legislative incorporation. But a good many libertarians simply see entity status and limited liability as creatures of the state and would be satisfied with elminiating general incorporation as a standard legal form provided by the state.
April 4th, 2008 at 3:41 pm
I agree that those seem to be their views. If entity status and limited liability are “privileges” (the latter clearly is; but the former?), they are privileges that are at least nominally available to everyone. Anyone can create a corporation, often for free, at the drop of a hat–or rather click of a mouse. Just see the website of your state’s department of state. As a practical matter, the wealthy are in a better position than most to invest in a corporation, so perhaps the idea is that the corporation is a privilege to that class. That seems more a problem of whether the wealthy’s wealth is legitimate however, not the corporate form. With respect to limited liability, I wonder: Do those who denounce corporations and favor worker-syndicates intend the individual members of syndicates to be unlimitedly liable for claims against the syndicate?
April 6th, 2008 at 3:49 am
“Anyone can create a corporation, often for free, at the drop of a hat–or rather click of a mouse. Just see the website of your state’s department of state. As a practical matter, the wealthy are in a better position than most to invest in a corporation, so perhaps the idea is that the corporation is a privilege to that class.” Yes, just as the Law in its majesty and impartiality forbids rich and poor alike to steal bread or sleep under bridges.
But wait, there’s more. Reworking structures to admit more than just natural persons reshapes the whole. Where natural persons have natural limits, and even what Byzantine Law called “moral persons” have (they were things like monasteries and municipalities that tended to come into existence without assistance, roughly speaking), things that are entirely legal fictions or that are turbocharged with additional privileges like limited liability are different. They throw a cost of maintenance on the social structure as a whole, and they provide handles for the economy and much else besides that can grow without internal limits - so they do, regardless of whether they serve “the wealthy” or just some internal dynamic. Indeed, in the end they have a zombie life of their own regardless of their original founders. In the end, the benefit and advantage they offer people who can use them best is only to be eaten last.
So yes, even syndicates of that sort should have full liability, though of course they can insure against things and spread risk by various means, at a price. Anything else allows those too to develop a life of their own - down the track, when it’s too late to do anything about them.
April 6th, 2008 at 12:24 pm
Brutum,
PML’s Anatoly France quote is pretty much on target.
The automatic nature of incorporation is precisely the problem. It might well be feasible to organize something like a corporate entity entirely by voluntary contract, without any previously defined standard legal form. But in that case, it wouldn’t be automatic. It would have to be negotiated on an ad hoc basis, with creditors and other trading partners having equal bargaining power and demanding serious concessions (like default insurance) in return for limited liability. And some might simply refuse to negotiate entity status and limited liability.
The automatic nature of general incorporation, with a standard set of forms and procedures, pretty much destroys this bargaining power that creditors and other stakeholders would have in negotiating the corporate form, and crowds out competiing alternatives.
The whole problem with providing a ready-made and automatic venue for general incorporation is that it makes the corporation, with its privileges, the dominant form of enterprise.
April 6th, 2008 at 7:10 pm
(Sigh. Finger trouble trying to post just there.)
I looked into how limited liability could be achieved conveniently without artificial support. One way is partnerships with anonymous sleeping partners, who have to produce their bearer shares to vote and get their payments by cashing in coupons. This leaves the managing partners on the spot if need be, and highlights that the management is not a mere servant of the company, indemnified and out of the line of fire.
April 6th, 2008 at 9:30 pm
Thanks PM and Kevin. Needless to say, I disagree with both of you that France’s quote is apposite here (though it’s of course a great quote!).
First let me clarify something in PM’s comment. PM’s comment “even syndicates … should have full liability” makes it sound as if the problem of limited liability is that of the organization. (I don’t think PM is confused on this; I just want to make sure readers aren’t.) It’s not. Of course an *organization* should not have its liability limited. The problem is the liability of individual constituents of the organization. If I am a constituent member of (worker at or investor in) an organization, and the assets of that organization are insufficient to cover a creditor’s claim against that organization, should that creditor be able to come after me personally? PM says “yes”. I’d still be interested in Kevin’s view (if he happens to have one) with respect to syndicates.
My view is “no”, at least as the rule. My concern is justice. (Others make arguments from economics and welfare. Without limited liability, rich investors would simply not invest because if they did they’d be too over-exposed; or they’d have an incentive only to invest with other rich investors; etc. The purpose of recognizing corporations–facilitating group economic activity–would be defeated. Etc. Some of these seem compelling, but as a general matter I’m less interested in economic arguments than moral ones.) Why should I as a member of a group be responsible for the sins of that group? To be sure, I ought to be held responsible for not doing my best within that group to steer it away from sin. All that requires is a director’s liability to third parties, for example–not unlimited liability of members. Also, to be sure, organizations should be required to make sure they are sufficiently capitalized and/or insured to be able to pay all claims against it. Most nations other than the US require these, and we should follow them. (But we never will if corporate law remains a matter for state law.)
It seems to me that Kevin’s concerns for the most part go away if the terms upon which a state recognizes a corporation are right–meaning sufficient capitalization and insurance are required. Again, I concede that our law ought to require more in these respects, as other nations do. Now, Kevin might respond that what terms are “right” depends on the interests of the parties, and therefore contracting parties not states should create entities. Or he might say: even if the terms are appropriate, why should the state provide a ready-made form rather than let contracting parties establish their own liability limitations? The answer often given here is that state recognition cuts down on the immense “transaction costs” involved in each set of parties in each transaction establishing the degree of liability of each of each party’s constituent members–and you can make of that argument what you will. (I don’t make too much of it.) Let me just draw a distinction between objection to the corporate form because it’s not an appropriate kind of thing for a state to be doing, and objection to the corporate form because the corporate form privileges capitalists, the wealthy, etc., etc. My interest is arguing against the latter position. I never set out to argue that the state *ought* to recognize corporations. I have mixed feelings on that matter.
April 7th, 2008 at 1:21 am
BF, I suspect you are the one that is confused. Without corporate structure, talking about syndcates is merely shorthand for talking about their members. Your confusion lies in building in conventional assumptions, that organisations are entities. I wasn’t talking about {entities called syndicates} at all, I was talking about {people grouped as syndicates}. I was talking about the way that responsibility should sheet home to syndicates=members, not about artificial entities which I wasn’t invoking at all (you imagined that part).
As for “My concern is justice”, you are getting at Lenin’s who/whom question. Why should someone the entity tramples on not have a come back? Remember, we aren’t talking only about freely and well informed contracting parties but about anybody it impacts, innocent bystanders included.
On “Why should I as a member of a group be responsible for the sins of that group?”, the answer is much like the one I would give to someone who left a fire unattended. It’s not the fire that’s the problem, it’s the very lack of control that you try to plead as an excuse. It’s no more an excuse than “I was drunk at the time” would be, unless someone had forcibly thrust booze down your throat.
The rest… again you are building in the assumption that there are other entitities than ourselves. To the extent that there are, that too is because someone made that possible - in part you, if you go out and set one up.
That comes back to the part that I think KC didn’t really pick up on. Having such artificial entities around competes with natural persons and crowds us out - even the wealthy. The problem isn’t just that it gives the wealthy more of an edge, though that is how it starts. It’s that these entities themselves come to crowd out everything that there could be, and so in the end real people don’t get a look in - even the wealthy.
April 7th, 2008 at 8:24 am
PM: You’re right that I assumed that by “syndicate” what is usually meant is a collective having rights and obligations that stand free of those of its constituent members. If I was wrong to assume that (I’m not sure I was.), thanks for letting me know. Now, in what sense do I mean “stand free of constituent members”? You seem to think it’s utter nonsense to speak of groups as having rights or obligations, because “there are [no] other entities than ourselves”. I understand that you are concerned that placing “rights” and “obligations” with non-human collective “actors” is hazardous. Let me limit what I mean to the perspective taken by *law*, which is that corporations, states, partnerships, unions, municipalities, hospitals, churches, universities, and other organizations can and do have rights and obligations that stand apart from their constituent members. If you want to argue that the law is wrong to take that stance, go ahead. My interest is not arguing for or against ethical individualism, ontological individualism, methodological individualism, etc., etc. My interest is trying to determine the specific grounds of argument on which people who object to “the corporations” base their objection. Your objection to talk of collective rights and obligations is much broader than that, so I’ll drop it. (I am in fact sympathetic to your concerns and I have a few friends who would be surprised to see me “opposing” your views on groups.)
You are certainly right to point out that we shouldn’t only (or even primarily) be concerned to do justice to investors as opposed to creditors of the corporation. You are right to remind us that there are not only contract creditors but also tort creditors. It’s wrong and *unjust* for a corporation or church or whatever organization to not see that it has sufficient assets to cover claims against it. As I said above, I think that the law ought to exercise more ex ante regulation of corporations via requirements of minimum capitalization and default insurance rather than relying on ex post “piercing the veil”. But it’s also wrong for individual human beings to not see that they have sufficient assets to cover claims against them. Sometimes people don’t have sufficient claims and they go bankrupt. Sometimes corporations do too. We can debate the *level* of capitalization and insurance that corporations ought to have, but at the end of the day it’ll never be enough to secure that it will be able to pay *all* claims against it.
April 7th, 2008 at 8:34 am
Oops, I sent that sooner than I meant to. My point at the end is that one can’t object to the corporate form *merely on the grounds that* the limited liability of investors might result in some tort claimants not having their claims unmet. It’s more common for tort creditors of individual human beings to not have their claims met. And we don’t on those grounds propose that individual human beings ought not to be recognized by a legal system.
I realize that PM will object that I am still working under a twisted set of assumptions, the main one being that there is some natural limit to groups–that groups at some point cease to exist even though their constituent members continue existing. As I hope I was able to get across above: I’m working under the law’s assumptions, which apply to all sorts of collectives, and perhaps those assumptions *are* twisted. But I doubt that those who object to “the corporations” do so on the grounds that *no collectives* should have rights or obligations.
April 7th, 2008 at 8:40 am
And oops: I meant “some tort claimants not having their claims met” not “unmet”.
April 7th, 2008 at 12:15 pm
Brutum,
My position with regard to syndicates is the same as that regarding corporations. I don’t see any injustice in the presumption that active partners are severally liable for the debts or torts of the organization. And under the common law, that was the standard presumption: that the property owner is responsible for what is done with his property in his name, is responsible for reasonable care in the oversight of his hired managers, and is absolved only in cases where his hired managers’ conduct could not be reasonably foreseen (a “frolic”).
It may well be that individuals could contractually establish entity status, with the entity alone owning the assets and being held liable rather than the investors. But I repeat, without an automatic and ready-made procedure for general incorporation, this is someting that would have to be negotiated from scratch And absent an automatic process of incorporation, and ready-made procedure and standard forms provided by the state, creditors would have a lot more bargaining power in extracting concessions in return for doing business with such an entity. Among other things, they might demand default insurance as a standard provision against the risk that the entity’s liabilities exceeded its assets. To the extent that the state’s provision of an automatic avenue to incorporation makes the corporation the standard form, crowds out competing forms of organization, and reduces the bargaining strength of creditors in demanding special safeguards for default, it amounts to a subsidy to the corporation in the amount it might otherwise be paying for default insurance.
I take a pretty hard Spoonerite line on bankruptcy: the creditor is entitled to whatever assets are available for collection at the time of default, and that’s all. If the debtor doesn’t have sufficient assets to cover the full debt, he’s liable only for what he’s able to pay, and then the account is settled. It’s the creditor’s job, ex ante, to make sure there is sufficient collateral and to otherwise make what he regards as satisfactory guarantee against default. Otherwise he’s SOL. I agree with quasibill that attempting to compel specific performance beyond the seizure of assets immediately available (e.g., garnishing wages) is impermissible, and amounts to a form of slavery.
Therefore, it is incumbent on creditors to cover themselves ex ante against the risk of default, by such means as default insurance.
And the state’s automatic procedure for incorporation, by making limited liability the standard business form while bypassing such ex ante negotiations, essentially bars creditors and others doing business with the corporation from requiring such reasonable measures. It’s forcing them to go into a hockey game without a cup on.
April 7th, 2008 at 2:12 pm
The mere existence of an automatic procedure doesn’t undermine the contract creditor’s bargaining position. Only an automatic procedure on *unfair terms* does. But the case that the terms under which a corporation is recognized in most nations/states is unfair to contract creditors relative to what they might be able to bargain for remains to be made. You mention that some contract creditors might require massive amounts of default insurance. Many nations already require that of corporations. I’ve said that ours should too directly (though it in effect does so indirectly by exposing investors to liability of having their corporate veil pierced in certain cases such as where there’s fraud, undercapitalization, etc.). Perhaps the level of insurance required should be higher. (It’s already pretty high in most places.) But if the terms of incorporation were fair, it seems to me you have no problem with the corporate form (at least with respect to contract creditors). (I should say “no problem” other than the one we both share: Even if the terms upon which a state recognizes a corporation are reasonably fair to both parties, there’s no *need* for the state to be in that business. It’s only, as far as I see it, a convenience that avoids transaction costs etc. Though I do think there is a modicum of non-instrumental good in having a group recognized by law as such.)
I see that we are both beginning to repeat ourselves, so go ahead and have the last word if you want it. Cheers. And thanks for your thoughts on syndicate liability.
April 7th, 2008 at 3:31 pm
Thanks for your thoughts as well. I’ll concede, at the very least, that I’d have *less* problem with it if default insurance were a required part of the package. That is, it would move a lot further down on my long, long list of stuff to be actively pissed off about. I do have other problems with the standard corporate form, though: especially the myth that corporate management represents shareholders. This theoretical ownership status of the shareholders in practice privileges the interests of management, as a self-perpetuating oligarchy, and insulates them from accountability to internal stakeholders.
If you Google Luigi Zingales’ work on this issue, you’ll find some good arguments that much (and in some industries most) of a firm’s equity is created by human capital that has no ownership stake–leading to all kinds of destabilizing knowlege and agency problems. The practical effect is that corporate management is depending, to maximize profits and productivity, on its own worst enemies. The workforce, whose skills and process knowledge are probably the single hardest asset to build up over time, have zero incentive to commit anything more of themselves than what is absolutely required to keep their jobs.
April 7th, 2008 at 6:42 pm
I’ll check out Zingales’ work, thanks.
April 10th, 2008 at 9:22 pm
Am I the only one who loudly guffawed, when the 1st wiki result of Zingales was his book, Saving Capitalism from the Capitalists, and the fact that it was co-written with a previous Chief Economist from the IMF?
Not to say that their work isn’t right or pertinent to a better/more libertarian economy, but goddamn, you just can’t escape The Leviathan!
A little disclosure: I definitely lean right/vulgar libertarian…translate my previous statements as you will.
April 10th, 2008 at 9:37 pm
Well, William Easterly is a former World Bank/IMF official and his book The White Man’s Burden is pretty good.