Corporations as entities

Adam,

I am interested by your description of non-liability of shareholders as “licenses [for] the initiation of force to its favorite "businessmen."” Would you elaborate?

Jon

Post 41

Wednesday, December 22, 2004 - 12:27pm

Jon,

I don't like floating abstractions, so let me ground this with an example.

Jeb owns an explosives store. If, to save labor costs, he has his employees handle the merchandise without taking the time for proper precautions, and the resulting explosion destroys the properties of his store's neighbors, then he has initiated force, and in a society of objective law is responsible for the harm.

Now suppose that Jeb incorporates the store as a limited liability corporation, and has his representatives on the corporation's board order its officers, to save labor costs, order the employees to handle the merchandise without taking the time for proper precautions, and the resulting explosion destroys the properties of his store's neighbors. He has initiated force as before, but now is immunized by the state from liability. The state's grant of limited liability transfers the financial harm from the initiator of force to the victims. This is, itself, an initiation of force.

In the first case, if Jeb understands his liability, he will buy liability insurance. The underwriter will make insurance conditional on proper handling of Jeb's merchandise. The explosives are handled appropriately, there is no explosion, and no harm to his neighbors.

In the second case, Jeb is granted immunity from his liability for torts, and therefore his motivation to carry adequate liability insurance is reduced, the risk is not mitigated, and the neighbors are harmed. The grant of limited liability is instrumental in the harm, and thus constitutes initiation of force.

Post 42

Wednesday, December 22, 2004 - 6:33pm

Thanks to Jordan for raising this issue. Jordan asks direct questions. Adam Reed has taken a step back to gain a broader perspective and in so doing has brought forward some of the basic questions.

1. It is diificult to separate "societies" from "corporations." Many of the American colonies were corporations. Cities in America are corporations. Utopian communities abound in American history. I have a whole book about the ones in just California. The state of Utah began as a group of Latter Day Saints and as "Deseret" they even had their own gold coins. In America, you can buy a home in a neighborhood with a "committee" or "association" that you must join which makes rules about things like cutting the grass and what time of which morning you can put your garbage out for pickup. Condominiums and co-operatives are other land-owning arrangements that look a lot like "corporations." Even apartment complexes have social areas and social activities and tenants groups to plan them and to make and enforce rules about noise, etc., different from the terms of the lease. These are all societies that are not easy to distinguish from "corporations." Then there are "societies" that exist independent of geographic bounderies, such as the Catholic Church and the Masons, as well as Physicians Without Borders, and of course, SOLO.

2. Corporations were first created by kings. The king said that these people have extra-legal rights.

3. As much as I am opposed to corporations as artificial contructs of the state, I do see a value in the legal groundwork they lay. In the future, a computer program will sue for its right to be recognized as an "eternal and artificial individual." A computer program that filed corporation papers would be a legal individual.

4. Contrary to what has been posted here, it is not hard to establish a corporation. The paperwork is well defined. Any intelligent person can do it for $50 or more depending on which state or nation you live in. If you want to be sure that you crossed all the ts and dotted all the is, pay a lawyer for an hour's work to read these very standardized forms.

5. In America the treasurer of a corporation is personally responsible for its federal taxes and bankruptcy is not an out for the treasurer.

6. The arguments for the benefits of corporate status -- raising money, primarily -- have analogs in the arguments for free universal healthcare -- especially in a world that knew nothing else . (We could never cure all these sick people without it. Doctors might be sued for malpractice if they did not work for the state. Who would finance medical research? Who would build hospitals and how would they know where to build them?)

7. As for the intrinsic value of longevity for a corporation Mick Jagger (attended the London School of Economics) creates "virtual corporations" for each tour: they raise money; put on shows; come home; split it all up; liquidate; start over. To me, this says that the benefits of companies that outlive their owners is not clear: it is just how we happen to do things by custom.

8. Imagine that there was never any such thing as a corporation and you invent the concept. How would you sell it -- and to whom? In other words, in a society of limited government, would you be able to convince a legislature or executive or judge to grant you the right to create an eternal and artificial legal entity so that you would be immune from the consequences of your actions?

Post 43

Friday, December 24, 2004 - 9:59am

Marotta:

Imagine that there was never any such thing as a corporation and you invent the concept. How would you sell it -- and to whom? In other words, in a society of limited government, would you be able to convince a legislature or executive or judge to grant you the right to create an eternal and artificial legal entity so that you would be immune from the consequences of your actions?

Great question. You and Reed seem to be questioning corporations on a front different from my own. Reed has outlined how the corporate structure might lead to an initiation of force, an often incompensable one. And you seem to be suggesting a similar line. This is interesting to me. Here the corporation would fall on moral grounds; whereas I was questioning whether it should fall on epistemic grounds. I wonder if your moral considerations would at all depend on my epistemic ones.

Jordan

Post 44

Saturday, December 25, 2004 - 5:37pm

Since you asked, I would have to say that while groups like "Microsoft Corporation" and "Christians" and "the people on the bus" are convenient in many contexts, granting them special legal status as a group is not a good idea. I believe that each of us is responsible for our own actions -- no more and no less.

Jordan wrote: But Rand was also very much against treating societies as entities, as so many of her opponents would. She would insist that societies were merely groups of individuals and shouldn't be reified into actual entities.

Looking in the Ayn Rand Lexicon, I failed to find any specific support for your claim that Rand said this. I agree with the claim as you made it. I would like to see a quote from AR on this.

Post 45

Sunday, December 26, 2004 - 8:23am

A respectable request, Marotta. Here you go:

"And--since there is no such entity as "society," since society is only a number of indiviual men--this meant that some men (the majority or any gang that claims to be its spokeman) are ethically entitled to pursue any whims (or any atrocities) they desire to pursue..." --Rand, "The Objectivist Ethics," The Virtue of Selfishenss, pg 15.

and

"Since there is no such entity as 'society,' since society is only a number of individual men, this meant, in practice, that the rulers of society were exempt from moral law..." ---Rand, "Man's Rights," The Virtue of Selfishness, pg 92.

Jordan

Post 46

Sunday, December 26, 2004 - 4:32pm

Thanks. I should have found those references. I have the works and thought I knew them well enough -- backwards and forwards, I would have claimed.

I am willing to hypothesize that like "society" "corporation" does not exist, outside of the law. People come and go from corporations all the time. "Corporate culture" changes.

Does "culture" exist?

Does "transportation" exist or are there only specific vehicles?

I can see the problems with this statement: (1) "Society demands that we execute thieves." Who speaks for society, would be one question, among many.

Is the statement (2) "Transportation demands fuel" in the same class?

Reflected by (1) statement (2) makes no sense. There is no such entity as "transportation" that makes a demand (on whom?) for fuel.

However, reflected by (2), statement (1) takes on a new meaning. It is not that the mystical non-entity "society" makes the demans that we execute thieves, but, rather than the execution of thieves is a precondition for society, just as fuel is a precondition for transportation.

Does "family" exist?
Do "tribes" exist?

In light of the ideas in this post, I would have to say that there is no epistemologic grounds for denying the existence of "corporations." Their existence begins with law and so their existence is rooted in ethics, not epistemology.

(Tough question. Did I get it right?)

Post 47

Monday, December 27, 2004 - 8:10am

Hi Marotta,

In light of the ideas in this post, I would have to say that there is no epistemologic grounds for denying the existence of "corporations." Their existence begins with law and so their existence is rooted in ethics, not epistemology.

To that I would say that ethics depends on epistemology. That is, we can't successfully make it to ethics if our epistemology is unsound. So I don't think this gets us out of the woods.

My own take on this is that societies do exist, just like families and tribes do. They are idenifiable groupings of objects (i.e., individuals), not just floating abstractions. I think Rand wanted to impress upon her readers that a society is not a volitional agent, that a society cannot want, think, or decide anything. Corporations are subject to the same critique.

What is unclear to me is whether a society should be allowed to sue or be sued. To sue, a society must be harmed (or at least be capable of being harmed). Should (epistemologically speaking) a society be viewed as something capable of being harmed? And to be sued, a society must've have done something. Can a society do anything? Again, corporations are subject to these same questions, and all these questions address whether we should respect the entity status of a group of individuals.

Jordan

Post 48

Monday, December 27, 2004 - 9:39am

Jordon wrote: To that I would say that ethics depends on epistemology. ... whether we should respect the entity status of a group of individuals."

1. In the essay "Man's Rights" Ayn Rand did say "... there is no such entity as 'society' since society is only a number of individual men..." Rand then went on using the word "society" in its common meaning. She said that the common characteristic of all collectivist ethical systems is that "society stood above the moral law" ... "that man's life belongs to society, that society can dispose of him in any way it pleases..." According to Rand: "A civilized society in one in which physical force is banned from human relationships..." Many other examples exist throughout Rand's works. She did not even put the word in quotes to show its questionable status. It might be said that she only failed to consistently apply her own definition. All of the citations above could easily be re-written without the word "society."

2. I agree, of course, that ethics rests on epistemology. It also rests on metaphysics. Unlike "God" corporations do exist.

3. Society does sue. Criminal cases are always framed as "The People Vs. the Defendant." However, individuals do not sue "the people." We bring complaints against governments, but more specifically against named government officials, demanding that the court compel or forbid certain actions. So, that is a contradiction in the law, perhaps. Perhaps it is best resolved in a rational system by dropping "The People" as plaintiffs and forcing the issue as "Mr. Prosecutor" or "Ms. Mayor" or "Officer Smith" versus the Defendant.

4. In the context of law as it exists now, it might be possible to not have corporations as entities, and so every case would be a class action suit.

5. It so happens that in the hobby of American numismatics today, one dealer (Alan Hager) sued 42 people whom he claimed had defamed him and damaged his business. They had the option of dealing with that as individuals, groups, sets, subsets, etc., but decided among themselves to meet the challenge as a group. Even so, they are listed as individuals. (The case was recently reframed with defendants added and dropped, but the essence is unchanged.) It so happens that General Motors has, I believe, ten separate issues of common stock. I think the total outstanding is something like 640 million shares. How do you list all those names in a suit? That is a technical problem, perhaps.

6. I have read -- I do not know this for a fact -- that when brought before a court for piracy, the ship was named as the defendant. However, the ship was not drawn and quartered. So, there is a contradiction in that.

7. I still stand by what I believe is the basic issue you raise. Collective guilt or innocence, collective culpability, etc., do not exist, only individuals and their actions truly exist. Therefore, in a system of objective law, there would be no corporations.

Post 49

Wednesday, December 29, 2010 - 6:04am