Corporations in a free society

Here are some of my thoughts regarding the existence of corporations that I have written for The Molinari Circle based on an article by Brad Edmonds. My first reaction to some of what Brad Edmonds proposes in his article "The Corporate Form, Limited Liability, and the State" was that it reeked of Chicago School economics. Chicago School Economics are renowned within the Austrian School as the school of thought that does not respect what is right and what is just as much as they do optimization of utility. Austrians, however, realize that if you do not respect the former you will not get the latter.

When justifying a good economic theory, like the theory of why a corporation should be given state granted privileges, we cannot use outcome as the sole reason for its implementation without regard for the ethics of the violence used to form corporation (state coercion). We must also ask ourselves why and if a corporation has privileges over the rest of society that causes damages to any part of society for the sole purpose of utility or happiness maximization. What this really boils down to is if it were not for the existence of the State, which takes money from society to function, could a corporation exist. No matter what outcome happens because of the existence of a corporation, whether it be utility maximization or a higher standard of living, if others suffer because they have to pay for these privileges to be implemented then these privileges are a part of the state and are created through coercion.

I tend to think Edmonds made the case later in this article as opposed to his earlier Utilitarian argument. Corporations are a matter of contractual relationships and private law that is not state driven. There are, however, many points of contentions and opportunities to change the existing form of a corporation in order to realize a private form that is not affected by the state or given special privileges.

Corporations can do things that individuals in a sole proprietorship or partnership are not allowed to do. A Corporation is a legal form of doing business that allows the people to form an entity that acts as a separate legal entity capable of owning things, being sued, suing, and other things that an autonomous legal entity can do. Special "state granted" privileges include issuance of stocks and bonds in order to gain enough capital to form a business with favorable economies of scale (economies of scale caused by the ability to produce a large quantity of goods at a low cost because fixed costs are nominal due to the capital goods efficiency).

The "special privileges" granted by the state would be the same as "special privileges" granted to anyone given a legal sanction to do what had previously been illegal. If it is illegal for a person to issue stocks and bonds then it is illegal for an individual to enter into the same contracts that corporations do. Is this the fault of a corporation? No, it is the fault of the state. They pick and choose the amount of freedom granted to people in society based on some indeterminable standard.

In a free society everyone would be able to issue their own stocks and bonds. No one is guaranteeing that these stocks and bonds will be purchased or that no fraud will ever occur. The job of determining high and low risk investment has been taken care of by the market for centuries. We do not need to protect the consumer in this sense at all. Fraud will still be fraud and so forth under the law.

Why can't a corporation act as a separate legal entity? Suppose a group of people get together and form contracts amongst themselves in order to share the expenses of expensive capitalization. They could create a set of assets that are democratically controlled by those who hold ownership claims can't they? They could also state in the general contract, or charter, that these contracts are easily transferable as any other commodity is. Since one of the characteristics of a modern business corporation is the ability to transfer ownership status without affecting the structure or legal status of a corporation this last point goes to show it is possible in a free society. Everything is owned but in a different sense than we are usually aware of. The chairs, desks, and buildings that make up the assets of a corporation are not owned by individuals but the ability to partake in the use of these assets within the constraints of bylaws that are contractually formed is able to be owned because contracts are relevant, even without the granting of special privileges by government.

The ability of a corporation to sell bonds in order to capitalize is similar to the ability of a person to take out a loan from a bank but instead of one large loan covering the cost of business we have multiple small loans that have identical contracts with those who decide to contract. This is not a special privilege, or at least it shouldn't be, because regular people often take out loans.

Liability is a more difficult issue to deal with. In a free society it is usually an individual who is liable for his actions. I will not really get into much detail here because this can be the subject for a whole new paper.

A sole proprietor is responsible for his or her actions to the point of his ability to pay. A person cannot pay for damages that he cannot afford to pay. We cannot change reality. A corporation, on the other hand, since assets are not owned by one single individual, no single individual can be held responsible. Can everyone who owns a share in the company be liable? No, absolutely not.

Suppose a corporation sells a product that is under warranty simply by expression. Express warranty is valid because if someone describes a product they are selling to you and title transfer occurs but you did not receive the product as described then you can sue for at least fraud and most likely damages caused by this fraud. If an automaker sold a car that blew up when it started, even though ownership changed hands, the ownership of that product was under the assumption that the car would function in a certain way simply through the description of the product. An actual written description and warranty saves a lot of trouble and litigation. The seller of the product would be liable but the maker of the product would be liable to the legal entity they sold it to also.

Why should limited liability prevail in the case of corporations? Most of the time a corporations assets are more than enough to cover the cost of damages incurred in a product liability situation. If this is not the case then are the stockholder's liable? Well, it depends on the contract. If a person engages in a business with a corporation and signs a contract that defines and holds only the corporate entity responsible for damages then stockholders are only liable up to the point in which they have invested in the corporation. If this is not the case then further liability can be attributed to more people.

Stockholders are certainly not liable because they have invested money. In that case anyone who gives loans would be liable for the actions of the people who accept the loans. Liability is based on action and as explained above contracts can mitigate liability.

In conclusion I think we can have all the benefits of corporations as long as they are contract based and not state granted privileges.

George Edwards

The Incredible Students for Ron Paul

The Ron Paul revolution is alive and strong here in Dubuque. About twenty-five college students detached from two hundred sixty college students in Des Moines to canvas Dubuque. It has been one of the best weeks of my life.

All of us in Dubuque met about a week ago after going to an inspirational rally in Des Moines. None of us really knew what to expect out of the next week. Jeff Frazee, a Texas student, promised us long hours and little sleep, and we could feel the bitter cold of the Iowan weather threatening our progress. Boone camp turned out to be cramped and unappealing; an ominous sign of what we thought was to come from our Dubuque assignment. Dubuque turned out to be a lot nicer.

Some of us were a little disappointed in the girl to guy ratio but that is not why we came. We came to convert as many as possible to the cause of freedom, to meet like minded individuals, and to impact the world in a positive way. Day one at Dubuque was spent discussing subjects from anarcho-capitalism, the metaphysical nature of concepts, Epistemology, and the usual topics college students talk about. I was impressed many times by the arguments made for freedom and glad that I didn't have to make them all. While getting into some good conversations we stuffed pamphlets with information for voters in Dubuque.

The next morning we ate our pop-tarts, granola bars, and trail mix that the campaign provided for us and we headed out into the bitter cold weather to knock on doors and hand out literature. My car consisted of Andrew Kovacs and Micheal Kapostasy and myself. Andrew drove, quite frighteningly at many points, I marked of the map, and Micheal stuffed and organized literature in the back. We parked our vehicle and went door to door until our fingers and legs were numb. We spent a lot of time talking to different people about why they supported which candidate and why they should support Ron Paul instead. We converted a few people but probably had a larger impact reinforcing Ron Paul's name along with radio ads and TV ads.

At about 4:30 to 5:00 we all met at a small school that a member of a local meet-up group let us use. At that point most of us were physically exhausted and full of tales from what happened during the day. Some of these stories are pretty memorable. One story included a student who knocked on the door of a disapproving Iowan who yelled at her kids to shut up when they were cheering for Ron Paul. Others included encounters with democrat campaigners who infiltrated the heavily democratic Dubuque area. Ron Paul supporters have always been curious as to why a person would support Clinton or Obama. Most of the volunteers for these two candidates were either dumbfounded or came up with superficial answers that included the race and gender of the candidate they supported.

After telling our nightly tales we would settle down and call hundreds of Iowans to see if they were Ron Paul supporters. We used our own cell phones for most of the week until the campaign provided us with pre-payed cell phones. Unfortunately we were calling Independents and Democrats and, although we had some pretty astounding conversions, we had a lot of negative responses. Some Iowans were sick of phone calls while others enjoyed talking to us.

Sign waiving was one of our favorite activities. We wanted to reinforce the name of Ron Paul in as many ways as we could think. After dark sign waving in well lit city areas, freezing ourselves beyond numbness, and having short winded hilarious commentary created a feeling of camaraderie that enticed us all to become good friends and open up to each other despite our differences. The anarcho-capitalists, the limited government types, and the Aaron Russo fans all openly discussed why they believe what they believe. Freedom is what bound us, it is how we met, and it is what we fought for. The cold martyred us, the people reaffirmed us, and the friendships catalyzed us. We became a group not unlike the elements of Freud's psychoanalytic philosophy. Some of us just wanted to confront the press and fight the argumentative fight, while others held us in check, but all of us had our own little intellectual areas of expertise that made us want to win it all in a rational and reasonable way. It was the id, ego, and superego manifest in Ron Paul students.

We met Barack Obama, Bill Clinton, Sam Brownback, Nixon's daughter, John Mccain, and most importantly Ron Paul. We went to a Mike Huckabee rally and waited outside for Chuck Norris, who we saw through the window. We were not allowed in the rally because we were decked out in Ron Paul paraphernalia but we glimpsed Norris through the window. They snuck him away, he didn't even take the "Huckabeast" from where we were located. The former governor of South Carolina talked to us in a very cordial manner.

At the McCain rally John McCain mentioned us in a positive light twice because he saw the twenty of us in the small audience. He was very respectful and even took pictures of us sporting Ron Paul signs. Brownback was there too. He told me and a student I was with that "Ron Paul" had a nice ring to it. I asked if that was an endorsement but he laughed and said "no." Can't win them all I guess.

I will never forget the group of students I met this week. One can almost wish that Ron Paul would run every year and we could of gather in solidarity to fight the good fight for a unifying cause. This will probably be the last time I see or talk to most of these people. It is a little sad, and, I am sure if Ron Paul comes out of this successfully we will all remember the cold we suffered through (though suffering was never on my mind), the relationships we formed, the jokes we made, the games we played, the talks we had, the random debates, and of course the few but beautiful Ron Paul girls. We were ordinary people doing extraordinary things.

George Edwards