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Note to Larry Lessig: Shall we amend the Constitution, but ignore possible reforms to limited liability corporation laws in the fifty states?


When Larry Lessig launched his “Anti-Corruption Pledge” last year, I commented on the Wiki page he set up for it, and left a copy in an earlier blog post.

Larry responded the next day. I copy here both his reply and my counter-comment:

But even if Limited Liability is a more fundamental problem, which I’m not convinced it is, but if: You still need the means to address it, which you don’t have till you address the money problem first. Lessig 10:44, 5 March 2012 (EST)
Larry, thanks for your comment, but I’m not sure I follow you. I think it is a fundamental mistake to ignore that corporations are created in states, despite their tendency to accept if not push for the federalization of corporate law.
Sure, we can try to address money in campaigns at a federal level, but that’s no reason to turn our back on the leverage that we have in fighting for more responsible corporations – and corporate owners. It’s alot easier to win at least one small victory when you’re also fighting in 50 smaller fora rather than just one big one. TokyoTom 14:44, 17 March 2012 (EDT)

Yes, there’s a problem with “Libertarian Wishful Thinking.” But there’s hope, despite Bob Higgs’ clear-sighted glumness.


[cross-posted from my Ludwig von Mises Institute-hosted blog.] 

Robert Higgs, Senior Fellow in Political Economy and Editor at Large, The Independent Review, has a piece up at The Independent Institute (last Tuesday, April 9), “Libertarian Wishful Thinking,” that is worth a “gander”.

I’d like to focus on the paragraphs excerpted below, and then give Bob and other lovers of freedom a little “goose”.

Says Mr. Higgs:

As a rule, libertarians incline toward wishful thinking. They constantly pluck little events, statements, and movies from the flow of life and cry out, “Eureka! Libertarianism is on the march!” With some of my friends, this tendency is so marked that I have become amused by its recurrent expression—well, there he goes again!

Some of this tendency springs, I believe, from their immersion in abstract thought and writing. …

One who maintains, as I do, that the existing system may crumble little by little, having heedlessly sowed thousands of poisonous seeds of its own destruction, but almost certainly will never just roll over and admit defeat, may seem to be a defeatist. But nothing is gained by entertaining an unrealistic view of what liberty lovers are up against. Even if one believes, as I do, that the existing system is not viable in the very long run, it may last in episodically patched-up forms for a long, long time. There are no magic bullets, such as abolishing the Fed. The state can use other means in the highly unlikely event that it should no longer have the Fed in its arsenal. The same can be said about most of the system’s other key elements. …

In truth, the time for liberty lovers to make a stand that had a fighting chance of success was a century ago. But that chance was squandered, if indeed it ever packed much punch. … Wishful thinking about the impending triumph of liberty may be uplifting for libertarians, but it avails neither them nor the world anything of real importance.

But it seems to me that while there is a great deal of truth here, simply acknowledging that vested interests are large and block change is not particularly productive and suffers from a failure to see the weak points in Goliath/Leviathan. Are there really no “magic bullets”? Are there no productive and achievable ways to “patch up” the system?? No leverage to apply to overthrow “this fascistic Rome”?

So I left the following comment; your further thoughts, here or at Bob’s post, are welcome:

While I think Bob is right that libertarians should lose their wishful thinking, I also feel that the real problem is that libertarians aren’t really putting on their thinking caps and thinking creatively.

“There are no magic bullets,” Bob says. But there ARE pressure points on which to focus.

Like attacking the corporate risk socialization that has fuelled upset citizens to act as Baptists in the charade so well played by the Bootleggers in building the Regulatory State.

Like using the states as experiments to create many agents of Creative Destruction against the Federal Govt and the crony capitalists.

Some thoughts here:

I don’t think we need to throw our hands up at all, or to lose our optimism. Rather, we need to start finding ways to rein in risk socialization and the “Other People’s Money” game by requiring economic actors to have MORE personal “Skin In the Game.”



TokyoTom | Apr 15, 2013 | Reply

As Bob Monks says, “corporate governance has failed and it’s time to move on.” So what’s next? Unleash the Hounds!


[Cross-posted from my main blog, this is a precis of an earlier post, in which I had cross-posted a blog post by Bob Monks. Minor edits.]

As I noted, veteran shareholder activist Robert A.G. Monks has concluded that – in brief (emphasis added):

the people who exercise power for the corporations need to be accountable to somebody. Over the years, it has become clear that they really are not accountable to anybody, and our experiment in self-regulation and minimal oversight has failed. In practice, this has meant that a small group of individual CEOs exercise power over financing elections and lobbying the passage and enforcement of laws. …

Society is a give-and-take proposition but for now, the powerful take much more than they contribute and that is not sustainable.

For me, corporate governance has failed and it’s time to move on.


So what do we do? I’ve already discussed this in a number of posts relating to how the state grant of limited liability to corporate shareholders has released moral hazard on a massive scale, leading to pollution and labor problems, a cycle of pressure for government ‘protection’ and government capture. These problems have been compounded by the “Principal – Agent problem” on which Bob Monks is throwing in the towel, which problem has its roots in limited liability of shareholders and has been exacerbated by the very securities laws that purport to protect shareholders of listed companies.

I left the following response at Bob’s blog (emphasis added):

Posted by TokyoTom on Nov 3, 2011 at 12:32 PM

Bob, the answer is simple:

— Let shareholders of publicly-listed firms alone to figure out how to protect their own interests [sink or swim], and

— Let better managed firms that don’t tap public markets (and thus who have smaller numbers of more sophisticated investors who don’t need the dubious ‘protections’ of Government) eat the lunches of the bigger, more bureaucratic and less profitable public firms. In other words, the existing system can’t be saved, and it is not worth the effort.

What we need is a whole lot more of Schumpeter’s ‘Creative Destruction,’ which we can expect from private firms — which have been growing as Sarbanes-Oxley has helped large firms build barriers by walling off access to capital markets.

One action item that I still see as necessary is to encourage the use of alternative corporate/organization forms where shareholders/owners retain a significant tail of risk. Since it is the moral hazard and risk-shifting made possible by state-granted limited liability status that has also fuelled the growth of the regulatory state, states can also experiment with dramatically lowering regulations for smaller local firms where shareholders have unlimited liability or must pony up additional capital to pay damages for any torts.



Published Sun, Dec 11 2011 1:29 AM by TokyoTom

BLOWBACK in Benghazi and Cairo – it’s not a BUG, it’s a FEATURE


For those befuddled about the “Global War on Terror” and the attacks on US embassies/consulates in Libya and Egypt, perhaps this bit of fun from The Onion in 1998 might help:

State Department To Hold Enemy Tryouts Next Week (excerpts below; go to link for full piece)(emphasis added)

Taking steps to fill the void that has plagued the American military-industrial complex since the 1991 collapse of the Soviet Union, Secretary of State Madeleine Albright announced Tuesday that the U.S. will hold enemy tryouts next week. …

The decision to hold enemy auditions was made during an Oct. 16 meeting at the Pentagon attended by a number of top military-industrial-complex officials, including Albright, Defense Secretary William Cohen, the Joint Chiefs of Staff, Senate Armed Services Committee Chair Strom Thurmond (R-SC) and Lockheed Martin CEO Thomas Reuthven.

“Everyone was of the opinion that an enemy was needed–and fast,” said Reuthven, whose company has laid off 14,000 employees since the end of the Cold War. “Nobody wins when there’s peace.”

General Electric CEO Jack Welch, who was also at the meeting, agreed. “Our profits are down 43 percent from 10 years ago. We sold more tritium hydrogen-bomb ICBM/MIRV triggers in 1988 than in the last six years combined,” he said. “Something had to be done.” …

Speaking to reporters, McDonnell Douglas CEO Richard Klingbell said the State Department should have foreseen the possibility of peace and taken steps to avoid it years ago.

“For decades, we took Soviet aggression and the arms race for granted,” Klingbell said. “We failed to realize that one day it might all come to an end. We failed to sow the seeds of future foreign discord, for our children’s sake. Thankfully, though, we’re finally setting things straight. We’re finally remembering that to make it in this world, you’ve got to have enemies.”

Note to Larry Lessig on his “Anti-Corruption Pledge”: Limited liability corporations are the taproot of both growing government and anonymous rent-seeking.


[Note: This is cross-posted from my blog (originally hosted at The Ludwig von Mises Institute)]

I refer to the very recently-launched “Anti-Corruption Pledgehere, which is the latest project by prolific Larry Lessig, now a Harvard Law prof and head of a corporate reform center there (and whom I have introduced and discussed in a number of preceding posts).

Larry further describes the purpose and motivation of the Pledge at his blog. (I note that I’m strongly in favor of pledges, as I noted in this blog post discussing the Kochs.)

I left the following comment on the discussion page of the wiki that Lessig created for The Anti-Corruption Pledge:

“Larry, you aren’t really attacking the chief problem, which the role that STATE-Created limited liability corporations play in centralization and aggrandizement of power in Washington, which then further attracts rent-seeking by increasingly anonymous (who owns and runs these corporations, anyway?) organizations that wish to use a bloated government to receive favorable inside deals and to raise barriers to entry in their respective markets.

“Corporations drive the growth of government because their LIMITED LIABILITY aspect means government protects shareholders from liability in the event of tort damage to workers/others/society. Citizens tired of holding the bag then must continually push legislatures and courts for “reform” that perversely helps to entrench the largest firms against newcomers.

“Corporations are not simply the “Health of the State”, but they’re created in STATES, which accordingly MUST be a main venue to seek to rein them in. States can stop creating limited liability companies, can deregulate for non-limited liability firms (where owners retain a large tail of risk), etc.

“Anonymity is not per se bad – the Federalist Papers and Anti-Federalist Papers were written anonymously – it’s the anonymity afford to those whom have already received important government privileges (viz., limited liability) that renders them and their agents unaccountable that is the problem.

“Thus I don’t see that public funding or limiting and requiring transparency of your broadly worded “political expenditures” (contributions? campaign ads?) really address the root problem.

“Fortunately, there are 50 states in which to start campaigning for responsibility owned businesses whose owners are NOT protected by governments from the communities in which they operate.

“Large, entrenched public companies are already seeing across-the-board declines in profitability and market capitalization (ask Robert Monks); they can be brought down by Schumpeter’s process of “Creative Destruction”.”


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