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© April 28,
2012 by Keith Weiner
Today, the government
of the USA is in an accelerating
transition. For the first 100 years (with a few exceptions)
the government of the USA existed
to set man free from men. The rights
of the people were respected
by the law and by the courts. And it is no coincidence that the USA grew from a small agrarian society in the 18th century to a wealthy
superpower barely a century later.
But today, the government is taking control over every facet of the economy: sector by sector, law by law, regulation by regulation, court decision by
court decision, czar by czar, presidential
diktat by president diktat.
In this environment, formerly good and honorable words
like “police officer”,
“banker”, and “corporation”
have taken on negative
connotations as people become aware
of the nature of our present
system. The evil
is not in the fact of being a police officer; it is in the nature of enforcement of bad laws (and neglect of enforcement of good laws). It is not in
the nature of lending (i.e. exchanging
wealth for income), but
in helping the central bank
create inflation (i.e. counterfeit
credit).
It is not in the nature of forming a large-scale enterprise, but in buying coercive powers and in forming an evil alliance with government.
By
Corporation, I do not refer to the modern parasite that latches onto the government, seeking to coerce its customers,
destroy its competitors,
and feed at the public trough.
Benito Mussolini coined the term for this system—fascism—though of course he did not regard it as the terminal stage of civilization. People today
also call this “crony capitalism”, a term I don’t favor, as it is not any kind
of capitalism at all, but
the negation of capitalism.
Ayn Rand once noted
that, “civilization
is the process of setting
man free from men.” When the government abandons its legitimate mission of protecting
the individual rights of
life, liberty, and property and instead
institutionalizes their
violation, then that
society is reaching the
end. What
inevitably must follow next is the disintegration
of the specialization of labor
and then collapse of the civilization
back into a dark age. Without the specialization of labor, each man must learn to produce—and physically labor to produce—everything he needs on his
own, using only the resources of the patch
of ground he happens to be on. This relegates
him to the level of a beast, and under such conditions life is short
and miserable.
It is in this light that I offer my two (gold!) cents about the nature of the corporation. Stripped of its pejorative
connotations—and of the looting of the current system—what is a corporation?
Earlier, I noted that a corporation is a large-scale enterprise.
Let’s begin there. I will first propose something that I think should not be controversial.
The production of certain goods and services
requires a large scale. There is no such thing as a local subsistence computer chip manufacturer. Intel does
and must operate on a world-scale. Only at this scale
is it possible to pay for the vast research and development necessary for a chipmaker. Only at this scale
can a factory produce such small and delicate things as computer chips.
The same thing applies
to an airline, or even food production.
We take for granted today that we can
go to a supermarket and buy
almost any fruit or vegetable at any time of year, any meat, or processed food. It will be safe, and it will be
affordable to a wage earner. This was not true 100 years ago, and it is not true
in many places in the world today.
What are the requirements
of operating at large scale? One needs a
large amount of capital (more than
one man could provide),
large numbers of employees,
and large numbers of customers. Let’s
look at these in order.
What are the requirements
of raising a large amount
of capital from strangers? First there
must be a business plan that
promises a good chance to pay
the investor a good return on his
investment.
And there is something else. The investor
understands that the
money he invests is at risk. But beyond that, he will
not willingly risk his life’s savings, house, and his family legacy. If investing
an ounce of gold necessarily
put the other 99 ounces he owned at
risk, then no one would invest, period. The investor has a choice of how to
pursue his goal of exchanging income for wealth. He can always fall
back on hoarding during his working career
and dishoarding in retirement. The entrepreneur, on the other hand, has no choice. If he cannot raise capital from investors, he cannot get
into business (or expand his business beyond his workshop).
What about hiring
a large number of employees? With each hire, the company incurs a risk of loss due to any number of factors including if the employee is injured, the employee causes an injury to someone else, the employee damages the company’s
property or the property of a third party, etc.
The same issues apply to selling at world-scale, to numerous customers all over the world. If a customer
is injured due to faulty product design or manufacturing, if customers
change their taste and refuse to buy a product which has been manufactured in
large quantities in anticipation of big sales numbers, a competitor sues for patent infringement,
or any number of other things happen, the company incurs a risk of loss.
One of the requirements of operating at
large scale appears to be in conflict with two other
requirements.
To raise money from
investors, there must be a limitation of liability. To hire a
large workforce and to sell
in large volumes incur risk
of loss that could exceed the company’s capital.
I propose for consideration by the reader a statement that
I realize is controversial today. I propose that
the only solution for the above
three constrains is the limited liability corporation. Without the
limitation of liability, it
is not possible to operate
a business at larger-scale
than a family
workshop. It would
be possible to make shoes, barrels, swords, and all
of the other goods of the
Dark and Middle Ages. It would not
be possible to reach the Industrial Revolution, much less to produce refrigerators, cars,
computers, or the Internet.
In addition to
the limitation of liability, there
is another important attribute of the corporation. The corporation itself
owns its capital such as money, land, buildings, tools,
inventory, etc. And the corporation is the party of record in contracts
such as with landlords, suppliers, customers, banks, etc.
This is the other controversial aspect of the corporation. For legal purposes, a corporate entity is a
“person” with
the rights of speech, liberty, contract,
and property.
As described above,
it would not be possible to operate a
business larger than a family workshop if each tool had to be
owned by a person (a wage earner?),
each contract had to be signed
personally by a person (a
manager?), and each debt incurred by an individual person (one of the investors?) It is the
corporation as such which
engages in production, owns its
means of production, sells
its output, contracts with other parties, etc. It is not merely a loose
confederation of family
workshops in a cottage industry, wherein each is an independent entity.
Thus we must conclude that our modern, industrial,
information-age civilization
with its advanced transportation, communication, health care, and other
technologies literally owes
its existence to the limited
liability corporation that
has the rights of personhood. Let us all work
towards the day when the corporation returns to
this definition and is no longer a large-scale
parasite, seeking ill-gotten
gains at the public trough.
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