FW: Limited Liability and the Right of Contract

Hi Mike and David,

I also find this subject fascinating. I instinctively feel that something is getting out of balance in our society with respect to corporations, and would like to better understand their role, from a libertarian perspective. Nader and the Greens may actually be on to something, here!

I generally agree with what Gary North said in the article: there is nothing wrong with having a limited-liability corporation; and having some well established standard corporate forms (in legislation or by the common law) is a great step for efficiency. (Though, perhaps these standard contracts could be provided by Walgreens or the Underwriters Laboratory or Lawyers-R-us rather than by the State, in some alternative anarcho-capitalist universe.)

While "OK" with limited liability, I do, however, have some concern about any concentration of power, whether it be in the government (the worst type because of the monopoly on force), or corporations, or labor unions, or the church, or etc. When two or more of these power groups get together and "collaborate", it can be especially dangerous to our individual liberty. I think that to a larger and larger degree we see this type of collaboration between corporations, (esp. big business,) and government. The media and government; and church and state, are two more examples that pop right to mind. On the other hand, the bond between big labor and government seems to be weakening over the last twenty years (thank goodness!).

One problem with having just a few standard forms is that they may not be really acceptable to one or the other party, but since the transaction costs of going outside of the standard forms is so great, there really is no viable option besides them. I think a lot of objections people have to corporations fall into this category; we'd like to change the details of the standard contract as currently set by legislation or common law, which we think has become too biased towards one or the other participants, or for or against third parties. Along this line, I have heard complaints that corporations are treated too much like natural persons; that they have too many rights under our current law, for instance a right to free speech. One could easily argue that only natural persons should have such right(s). So, maybe some fine-tuning could fix most of the problems with corporations.

In many fields of endeavor one effectively has to deal with these corporations. Even though you may get to choose which corporation to deal with, they are all organized under the same principles. In effect, there is a sort of state-sanctioned monopoly on how these businesses are set up. For example, you may only want to loan money to a non-limited company, but since there are none such, you must loan to limited companies or not at all. Now, I know you have no "right" to have non-limited companies as potential customers, but I also suggest that due to state intervention in the market there may be less choice than there would be in a more free market.

Finally, there is an argument that corporations have an unfair advantage in the marketplace, driving out all alternative business organizations. While one could argue this is not true from a philosphical perspective, each advantage having a compensating disadvantage, there seems to be some basis for this conclusion in fact. Even if true, perhaps it is not, in and of itself, a bad thing that corporations have proven to be the most efficient form and are thus driving out all other forms. Would corporations still have this advantage if it were not for the backing of the State and therefore the implicit access to force?