Is the Corporation a Creature of the State?

26 September 2006 at 5:51 pm Peter G. Klein 3 comments

| Peter Klein |

Piet-Hein van Eeghen argues in the Journal of Libertarian Studies (1, 2) that the corporation’s “entity status” — from which attributes such as limited liability and perpetuity are derived — is an artificial product of state intervention, a feature of the commercial landscape that wouldn’t exist in a truly free market. I think Eeghen is wrong, partly for failing to distinguish between limited contractual liability (which is achievable through contract) and limited tort liability (which isn’t). Limited contractual liability was a standard feature of joint-stock companies long before limited liability became the default rule in English common and statutory law, as Henry Hansmann (among others) has pointed out.

Anyway, for an interesting and lively debate on the corporation’s status in the free market, see this exchange (and the links therein) between Sean Gabb and Stephan Kinsella.

Entry filed under: - Klein -, Classical Liberalism, Institutions, Theory of the Firm.

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3 Comments Add your own

1. David Gordon | 27 September 2006 at 9:02 am

Robert Hessen, In Defense of the Corporation (Hoover Institution Press, 1979), is an excellent defense of the view that the corporation isn’t an artificial product of state intervention.
2. brayden | 27 September 2006 at 1:23 pm

Another line of reasoning is that the corporartion has other actor-qualities that are not derived from the state. The political philosopher Philip Pettit (at Princeton) has a nice paper on the autonomy of group behavior from its constituting individuals. He essentially argues that group qualities emerge out of interactions between actors, which create a sense of group autonomy. If the corporation, like other complex organizations, can act as a responsible actor, the state is merelyofficially recognizing (through the corporate charter) a real and important quality of that organization.
3. Peter Klein | 27 September 2006 at 2:02 pm

Thanks for the references. Eeghen’s Part 2 is actually an explicit critique of Hessen. Brayden, I like your point, though I think Eeghen and other critics aren’t disputing the advantages of teams or complex organizations in general, just attacking the corporate form as a specific legal entity. Eeghen and left-mutualist critics like Kevin Carson argue (I think) that in the absence of state intervention, alternative forms of organization such as worker-owned cooperatives would emerge as the dominant organizational structures.