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No Limit to Folly πŸ”— 1439057937  

Yet another anarchist "controversy" came over the wire yesterday about limited liability and the corporation. Since I was doing some database maintenance at the time, I had time to scribble my 2 cents on the matter.

On limited liability: there's nothing morally wrong about doing business with a firm that explicitly limits the liability it can incur when doing business with you. Doesn't make it a good idea in all cases, but for the vast majority of goods and services it's not that big of a roll of the dice, and limitation of liability could allow for lower prices. Of course, the current system does not explicitly explain this to the customer, which is one of the big educational problems about economics that should be addressed.

This ignores the fact that when combined with an authoritarian hierarchy (yes, most companies are such) limited liability morphs into something resembling the Nuremberg defense.

Since Limited liability encourages the owners to be less careful with their agents, you start to get into trouble the larger you make the organization; as small errors then cascade into lethal ones. Couple that with the face-saving culture of hierarchies, and it becomes quite clear why so many preventable tragedies come out of such places.

This is just like how the western nations can always gather intel on impending attacks, but universally fails to act on the information; It is not a failure to acquire knowledge (like in socialism/communism), but an incapability of taking action due to natural bureaucratic paralysis.

The lefty-anarchists wanna work in their communes and watch their centrally planned rationing mechanisms fail, and the righty-anarchists want to slave away in a kafkaesque authoritarian hierarchy. I agree that you can knock yourself out if we truly become free of coercion, but that doesn't make either way a good idea.

In my opinion, the most effective limitation of liability is reality. Nobody really believes roofers when they offer lifetime warranties, after all. Similarly, don't expect contracts to stop lynch mobs after your limited liability product or service kills somebody. There is no free lunch, no easy way out. Making simplifying assumptions like limiting liability fail for the same reason that econometric models fail -- their foundational assumption is flawed.

So, what should the Austrian economist do? Follow the action axiom -- People act on the information at hand to achieve their desired objectives. This suggests that liability is limited only so long as it suits either party, which is really no limitation at all. As such, the wisest structure for a company wishing to minimize liability by my estimation is to forgo any pretense at limitations (it's just overhead, eh?) and operate like a loosely-affiliated terrorist cell. Being difficult to disrupt is the most effective way to limit liability. I believe the open source movement and the companies in it's orbit is a modern expression of this tendency.

Of course, that's not really what's at issue here, as nobody really reveals what they want out of a situation in such discussions. I suspect Wenzel is interested in what would be best at maximizing return on capital investment (implicitly betting that his field of endeavour will not incur liabilities greater than profits). Similarly, I suspect the C4SS guys just want to work in a structure that doesn't give them crippling anxiety like hierarchies do.

Like most anarchist controversies this one turns out to be as vacuous as most others -- it's really a matter of personal preference. This one basically comes down to how much risk you are willing to tolerate. In that way, I'd say Wenzel wins on an emotional level; "so what" is the correct response.


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