Comments on: Sweet liberty

By: bill carone

bill carone — Thu, 25 Mar 2004 17:21:20 +0000

Dsquared, “Yeh, but who would write this sort of insurance? It looks much more inclusive and dangerous than directors’ negligence insurance or professional liability insurance, both of which are graveyards of the insurance industry.” So, we are off bankruptcy and onto limited liability now? Just checking. Perhaps there are connections that I don’t see; I thought that one was about contracts and the other was about torts. I am not an expert in insurance or limited liability. Perhaps you could teach me something about it. What do you mean by graveyard? I find lots of insurance companies who carry e.g. professional liability insurance. Is it just not profitable? Is it the standard adverse selection and moral hazard problems (people who are good risks can’t afford insurance and bad risks are too bad to insure)? Who writes liability insurance for partnerships that (i believe) don’t have limited liability? Could it be that, if there were no limited liability for corporations, it would stop being a graveyard? What kinds of issues and risks are you thinking of? Any good sources I could go read for myself? I think of accidents mostly when I think of limited liability; a corporation damages or kills third parties unintentionally (and not recklessly), and gets sued for more than the corporation can pay. Under limited liability, only the corporation’s assets would be forfeit. Without it, all the owners of the company could be sued as well, and would have to manage this risk. If an action by a people in a company intentionally or recklessly kills or hurts someone, then it is more of a criminal matter, and prison for the specific people involved wouldn’t be such a problem (not the owners, in most cases). Compare a car accident to vehicular manslaughter or drunk driving. Another standard libertarian argument has to do with risks; sometimes you can be required to have insurance if you are engaging in particular level of risky activity (risks to third parties on their own property; other situations can be dealt with through contract). With such a requirement, would this help or hurt that part of the insurance industry?

By: dsquared

dsquared — Thu, 25 Mar 2004 12:47:46 +0000

Kip: As I understand it (not ness. very well) majority of people in debtors’ prisons were (in principle) earning money by picking oakum (me neither, but the British Navy seemed to need a hell of a lot of it), sewing, breaking rocks, etc.

By: dsquared

dsquared — Thu, 25 Mar 2004 12:45:20 +0000

So, if I buy stock in a company, I also buy a piece of liability insurance that covers me in case of the company being sued and running out of assets. Yeh, but who would write this sort of insurance? It looks much more inclusive and dangerous than directors’ negligence insurance or professional liability insurance, both of which are graveyards of the insurance industry.

By: Jim Henley

Jim Henley — Tue, 23 Mar 2004 19:48:57 +0000

So a government official uses his official powers to welch on a commercial obligation and this is supposed to show something dire about libertarian societies? That would seem to be what your lit-crit types call a “strong reading” of the text. Or maybe “ingenious.”

By: Kip Manley

Kip Manley — Tue, 23 Mar 2004 17:45:16 +0000

Debtor’s prison, though: yes, deterrence, and recouping the loss through ransom. Okay. But the deterrence angle seems foolish; I don’t think people were any more rational about their own personal chances of beating the odds then than they are now, and anyway what you’d deter isn’t so much defaulting on debt as taking on risk in the first place: you’d be curtailing commercial activity and entrepreneuialism. Dumb, dumb, dumb. —Of course, I’m looking at another world, and through jaundiced spectacles at that. Entrepreneurialism was the purview of a very specific class; the ability to “make” money was limited to very few. And anyone who gets into debt did so because they were lazy and immoral, and so it did no good to work with them to make good on their debt—might as well stick them in prison and if some better, more solvent relative could repay the sum, hey. Everyone wins.—And, I suppose, when it was so much easier than now to flee your debts by skipping across the country and taking up a new name, there is a certain brutal, ad hoc logic to clapping the debtor in irons to prevent them from running out. It just seems like such a monumentally stupid process to have sprung up. “We take people who have failed to meet their financial obligations and remove them from any productive role in society whatsoever!” Ah, yes. Okay.—But there’s so much monumental stupidity in the world around us that I really shouldn’t start yelling at history books, too. Sigh. Oh, our wacky predecessors…

By: bill carone

bill carone — Tue, 23 Mar 2004 14:46:24 +0000

Doug, “No bankruptcy system is like, buy a ticket, sit where you can.” And libertarians have ways of dealing with the problem of bankruptcy, as I showed in my post above. “Man, libertarians make me tired sometimes.” Some libertarians have thought of the exact solution you suggest: secure all loans explicitly. They even have ways to do this that dealing with issues like “If I already have $10,000 to secure the loan, why am I asking for a $10,000 loan?” Why doesn’t a system such as the one I described work, Doug?

By: bill carone

bill carone — Tue, 23 Mar 2004 14:40:03 +0000

Dsquared, “I just don’t believe that the kind of liability insurance you would need to get anything like the protection of current bankruptcy law could be provided on an insurance model.” I suggested liability insurance to deal with limited liability, not bankruptcy. Securing all loans is the way I suggested to deal with bankruptcy. (I am not an expert on either, so I may be confusing terms). So, if I buy stock in a company, I also buy a piece of liability insurance that covers me in case of the company being sued and running out of assets. “Quite apart from anything else, who provides liability insurance to the insurers?” Re-insurers? (Turtles, turtles, turtles … :-)

By: alkali

alkali — Tue, 23 Mar 2004 14:12:13 +0000

I’m not sure that it’s correct to characterize limited liability as an interference with freedom of contract. … Creditors of the [limited liability] entity enter into contracts with it freely, with full knowledge that the liability of the entity’s shareholders or limited partners is limited. Not creditors holding judgments on tort claims. (Although that’s not a freedom of contract issue.)

By: bryan

bryan — Tue, 23 Mar 2004 11:59:28 +0000

Kip, in my readings of Dickens it seems to me that the clear reasoning behind imprisonment for debt is: 1. punishment for being a debtor 2. hope to deter said debtor from being a debtor in the future. 3. and the main one, the hope that the debtor has relations or otherwise hidden means to pay their way out of debtor’s prison. When Pickwick is imprisoned it is clear that he has the means to secure his release but refuses to do so considering it morally wrong. Only when his landlady is imprisoned, due to the her not being able to pay the lawyers for her case against him, does he relent, paying his way out of debt so that she can pay her way out. A nice thought experiment in ethics I believe.

By: Doug Muir

Doug Muir — Tue, 23 Mar 2004 10:59:56 +0000

Bankruptcy seems like a better example. It allows one party to a contract to abrogate the agreement unilaterally Yes, it sure does—under certain specific clearly defined circumstances—and thank goodness for that. You /do not/ want to do business in a country without a functioning bankruptcy system. I speak as someone who has spent years doing commercial law in such countries. Businesses die all the time, even in the healthiest of economies, even when the business owners are intelligent and skillful. There has to be a method of getting those assets back out into the economy. A modern bankruptcy system is the best way yet found to do it. Note that a good bankruptcy system tends to result in the creditors getting more assets. and it’s difficult to contract around it. Depends on what you mean by this. An intelligent creditor has a number of options available. Most obviously, he can take a security interest in some property of the debtor. Secured creditors go to the front of the line—in most systems, they even stand ahead of the tax collector. To really, really simplify things… a good bankruptcy system is like assigned seats in a stadium. Buy a ticket, get a seat. No bankruptcy system is like, buy a ticket, sit where you can. Result: fist fights between angry drunks, people getting crushed, collapsing bleachers. Kinda hard to actually watch the game. It’s been tried. It doesn’t work. In the US at least, I don’t think a creditor can enforce a contractual provision that purports to forbid the debtor from entering bankruptcy. Of course not. The Founders wrote a right to bankruptcy into the US Constitution—Article I, Section 8, Clause 4. Man, libertarians make me tired sometimes. Doug M.

By: Conrad Barwa

Conrad Barwa — Tue, 23 Mar 2004 10:54:31 +0000

Reliance on mercenaries is the historical exception rather than the rule, feasible only when the military technology gives a big advantage to skill and good equipment, as opposed to willingness to fight. I think on balance this is incorrect; certainly when looking at European history when mercernaries were the rule for large periods of time and not citizen armies. The Greek city-states that were democracies were partial exceptions partly for mobilisational reasons and partly because a willingness to fight and defend the political order was seen an important part of citizenship, partially true also perhaps of Republican Rome, though by the Imperial period the Roman Army could be said to be a professional, if not mercernary force. In the modern period early attempts, such as those by Machiavelli for instance to build a citizen-army to combat mercernaries failed badly, in the Italian wars when mercernaries were the norm. Only with the gradual bureacratisation and centralisation of the state, was the latter able to replace mercernaries with a citizen-based force and with the arrival of nationalism and mass politics I think mercernaries were on the way out. Still, I think if I am not mistaken as late as Waterloo, a force largely raised through past reliance on the levee en masse, could be defeated by a more professional/part mercernary army. Certainly the British, some of the more successful Empire builders, did so by relying largely on their mercernary armies as the EIC army in Asia shows.

By: John

John — Tue, 23 Mar 2004 08:54:36 +0000

On the question of military recruitment, the basic system through the 18th century, as I understand it, was a kind of indirect contract farming system. Essentially, a captain was an independent contractor, who had the right to raise troops in a certain area, both by means of volunteers and by press gang. So it was kind of a mercenary situation, but on a small scale, not like hiring entire mercenary armies (which was rarer). As to the rich, they would not have been press-ganged – only the lowest elements would be impressed into service. Of course, the best sorts would be officers in the elite regiments, or generals, but the solid burghers generally avoided any kind of military service. It was the highest and lowest who were involved in fightin’.

By: John

John — Tue, 23 Mar 2004 08:54:09 +0000

By: dsquared

dsquared — Tue, 23 Mar 2004 07:32:57 +0000

Bill: The kind of generalised liability insurance you seem to be talking about looks like a paradigm example of an uninsurable risk to me. Even medical liability risk (which is a much more accidental and less morally hazardous risk than the liability of a business enterprise) is not exactly unproblematic in the current world. I just don’t believe that the kind of liability insurance you would need to get anything like the protection of current bankruptcy law could be provided on an insurance model. Quite apart from anything else, who provides liability insurance to the insurers?

By: John

John — Tue, 23 Mar 2004 07:00:58 +0000

Ian, the American and French revolutionary wars and the English civil war are obvious examples where citizen armies (in the pure sense) have prevailed over both mercenaries and professional national armies. Even in recent African conflicts, mercenaries have done pretty badly, with lots of would-be Wild Geese ending up in prison or in front of firing squads.