From: Randall Randall (randall@randallsquared.com)
Date: Thu Sep 11 2003 - 03:30:40 MDT
On Wednesday, September 10, 2003, at 09:37 PM, Rafal Smigrodzki wrote:
> Randall Randall wrote:
>
>> Well, limited liability is a State-enforced distortion of
>> the market, rather than something inherent in the market.
>> I agree that limited liability should be abolished.
>
> ### Why? Don't forget that tort liability (and this is the liability
> we are
> talking about) is a almost always a function of the state court
> system, so
> its limitations/extensions are not a matter of physical law, but
> malleable
> convention, to a larger extent than e.g. contract law, which has a more
> direct recourse to game theory, and reciprocity-based moral intuitions.
Well, I want to abolish the State itself as well, to be sure. I would
say that it is illegitimate to remove liability in any sense by fiat,
rather than by contract with the affected individuals. I'm not at all
sure that a privately produced legal system would have two different
kinds of "crime", since these seem to map directly to "crime against
an individual" and "crime against the State", except that lawmakers
consider murder to be more importantly a crime against the State than
against an individual, weirdly. Therefore, when I suggest the
abolition of that entire class of crimes, I don't mean that every
crime in the class should be likewise abolished.
If we remove this obfuscation of offenses, so that all offenses are
against an individual or group of individuals, it's clear that
removing liability without the express consent of those who would
otherwise be able to collect damages is simply legalization of
aggression.
> I see no reason why limited liability should be prohibited. This legal
> convention allowed some increases in investment, especially for poor
> people.
It isn't so much that it "should be prohibited" as that it has to be
specifically allowed, and you need a State (or universal agreement by
all actual and potential legal systems) to allow it.
> Tort liability in this context can be satisfied by liability insurance
> carried by the LLC. The assessment of risk performed by professional
> adjusters for the insurance providers would determine the premiums,
> which
> directly translate into increased stock prices of dangerous companies,
> and
> provides incentives for limiting liability exposure (by e.g. adopting
> safer
> business practices).
Instead of having a separate requirement for carrying insurance, why not
let the managers/owners of the business itself choose whether to carry
such insurance? Removing some market feedback mechanism (liability for
one's actions, in this case) always seems to require one or more other
changes. Each of these changes distort the market in other areas in
some (possibly small) way, which eventually look like "market problems"
to politicians, who then campaign to fix them with more patches.
If, instead, you just use a rule of "one is responsible for one's own
actions", and rigorously enforce it, then exceptions which arise will
be purely voluntary and can be contract-based. Liability cannot be
limited by fiat, but it can be assumed by contract, which will often
have the effect you want, above.
> Without limited liability, stock owners would assume unlimited
> liability,
> and only the professionals or the foolhardy can do that repeatedly.
> Alternatively, only stocks carrying sufficient liability insurance
> would be
> widely traded, but this would not differ from an LLC with insurance in
> anything but name.
So other instruments that don't carry ownership would be created. For
instance, you could have an instrument which was purely a debt-based
instrument, but which entitled the bearer to a share of the profits of
the enterprise, without any ownership of the enterprise. This would
act the way you want stocks to act, without requiring a change in the
way the legal system works for the people involved.
> Abolishing LLC would change little in the economy, except for some
> names,
> decreased reliance on stock for funding, increases in reliance on
> credit,
> and maybe increased use of commercial insurance by businesses. The
> non-professional investor would lose, and consumers would not gain.
It seems to me that a statement that little would change in the economy
is equivalent to a statement that you can centrally plan this aspect of
the economy, and by extension, all aspects which it touches. I'm very
skeptical of this kind of statement, since I'm unaware of any clear
examples of the success of economic central planning.
-- Randall Randall <randall@randallsquared.com> "When you advocate any government action, you must first believe that violence is the best answer to the question at hand." -- Allen Thornton
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