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Feb. 25, 2013 - Freedomain Radio - Stefan Molyneux
50:08
2336 Corporations Are NOT People My Friend! - Stephan Kinsella on Freedomain Radio
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Hello, hello.
It's Stefan Molyneux from Free Domain Radio.
I'm here with Stefan Kinsella.
Not from Free Domain Radio, but from, in fact, the industrial practice of law.
And we, in fact, are both going to be speaking at a Texas event.
This is...
It's going to be myself, Stefan Kinsella, Jeffrey Tucker, many more.
This is at the March 23rd.
Liberty in the Pines.
I believe you and Jeff are going to be Liberty.
I'm going to come dressed as a pine.
This is at Steve Austin...
Is that really right?
Steve Austin, State University in Nacogdoches, Texas?
Anyway, we'll post that.
Stephen F. Austin, yeah.
Nacogdoches, they call it.
Nacogdoches.
Nacogdoches.
Okay, fantastic.
All right, so that's our pitch, and we are going to be talking about...
I don't know.
How can we sexy this up a little bit?
Nude corporations with Jell-O? Small is beautiful.
Hey, it's Canada in February.
I feel drawn to that statement, so let's go with that.
Okay, so let's start with Romney's statement.
And I think Romney's statement, you know, corporations are people, my friend, was kind of misinterpreted.
And fair enough, you know, I mean, everybody misinterpreted what Obama meant by you didn't build that.
And when he said – when people were saying, let's just tax corporations, what I think he was trying to say was, dude – Corporations are people.
There's no third entity called corporations that go out and work and dig ditches and make money.
If you take money from a corporation, there's just less money to pay people.
There's less money to buy supplies.
There's less money to invest in capital upgrades, all that kind of stuff.
And there's this weird thing where corporations are given a kind of demonic life of their own.
People aren't bad, but those corporations are just wretched and terrible.
And so what are some of the misconceptions that you think people have about corporations that we can… Well, the Romney thing, I didn't pay too close attention to it, but I do think he was just getting at the idea that corporations are made of people or have people that are employees, and if you tax them, you're hurting real people.
I think he was getting at a common-sense point, but as a matter of law, actually, legally, he was correct.
Corporations under today's modern legal systems do have what's called corporate personhood.
They're like … an entity under the law, which is why then you have all these legal kind of conundrums that the courts have had to deal with like, well, what are corporations' rights?
Do they have free speech rights themselves, etc.?
And even – there's even – I never quite understood it to be honest, but there's even the possibility of criminally punishing a corporation… I mean you can't really put it in jail if it commits a criminal act, but you can – there is a way of criminally punishing corporations.
I don't know if you should dissolve it or something like that.
I think the misconception is usually on the leftist side.
I think – well, on the leftist side, they usually mix together a bunch of arguments.
Some of them are legitimate, and some I think are a little bit confused.
Of course, they're against subsidies.
They're against state – Laws that prop up corporations, and I agree with them on a lot of their criticisms.
In fact, I agree that some of the misconceptions you and I would agree with would be like Ayn Rand's idea that big businesses – the government is the enemy of big business.
And Rothbard and Kolko and other guys have shown that it's the opposite, like laws like minimum wage and – Tariffs and pro-union legislation and the FDA process, patents and copyrights, all these things are not really – they impose some cost on larger corporations, but it's disproportionately larger on smaller companies and smaller competitors.
So it puts a barrier to entry.
Yeah, like if you already have a legal department, then you don't care that much about more regulations as opposed to some guy who's got three employees who's given 50,000 pages of regs to figure out.
He's going to be like, oh, forget this.
I think I'll just go mow lawns.
I'll be a software developer or something.
So, yeah, I mean they love the complexity and they love the regulatory capture thing because it lets them raise the barrier to entry.
And there is a natural dinosaur versus tiny mammals thing in economics that as you get big and successful, you get kind of sclerotic.
You get kind of less innovative and so on.
And instead of reinventing yourself all the time, what you tend to do is transform.
is try and keep smaller competitors out.
Governments are fantastic at doing that.
Yeah, a recent example from just a couple of years ago, Walmart was in favor of raising the minimum wage.
Now, Walmart pays above the minimum wage, so they wouldn't be hurt by this increase in the minimum wage But it would hurt smaller, more nimble competitors that are maybe threatening Walmart's toehold in some areas.
So that's a good example.
There's a lot of other examples like this.
Sorry, can we just start?
I'd like to – if we could just to give a little bit of the background because when you sort of start with the premise that corporations are people – I mean it's not written in stone.
I don't believe it was the 11th commandment to honor their corporations as their mother and their father – But it came into being and I think it came into being as a way of allowing people to invest, allowing people to become shareholders, allowing for debts to be assumed which couldn't reach into the personal assets of corporate – of the directors of some organization.
I don't know what word to use instead of corporation because corporation is just one kind of business organization.
A firm.
I would call it a firm.
A firm.
Okay.
Okay.
So a firm, of course, wants investors and if the investors have to take on liability that the corporation or the firm takes on – So you invest $50,000 in some company.
The company ends up $100,000 in debt.
You don't want to have lost your 50 and then assume $50,000 more in liability.
So, I mean, there's no reason for that.
And in fact, I would love to invest in a company where shareholders did take personal liability because you know they'd be really interested and invested.
They wouldn't exactly be day traders.
But people wanted to be able to invest and obviously firm directors wanted people to invest without exposing themselves to any more liability than simply losing the value.
Of their investment.
When I was in business, when we were starting out, the software company I co-founded, we had to go to a bank and the bank basically just looked us up and down and laughed at us.
We ended up having to write personal guarantees for the money that we needed to get started.
But once we got bigger, we got shareholders and we got on the stock exchange as part of a parent company, all that kind of good stuff.
I can really understand the – wanting to attract investors and investors not wanting that personal liability.
Is it fair to say that that's some of the roots of how it came about?
It is, and that's not my argument for – in fact, I would actually agree with you.
I think state and corporations should be abolished for various reasons, which we can get to.
My disagreement is that one reason for that is to get rid of limited liability.
Let me give a little overview kind of legally, historically what happened here.
Before the advent of the modern corporation, there were partnerships, so you and I go into business together, and we're both kind of managing the business, so we're kind of responsible for what's going on.
We're directing the actions of employees, so naturally we're responsible for the debts of the corporation – or the partnership, sorry.
We're each jointly and severally liable.
That means if you and I together in our business – I mean there's no legal entity.
It's just you and I. We're individuals.
We call ourselves Steph and Steph anarcho-capitalists.
All right, but I would want to be the first Steph.
You were.
I said it that way.
That's really important for me.
Sorry to go in there.
And so first of all, there's two types of possible liability that this – we could have together.
It could be a contractual liability or it could be for some kind of crime or tort, primarily a tort.
One of our truck drivers hits someone and hurts them, or we don't pay our – We don't pay one of our suppliers, something like that.
So we're usually liable together and individually for the full amount because we're both responsible for the actions of the employees.
We're directing them, etc., so there's a close connection.
There started to arise something called a limited liability partnership, which is some partners are what's called passive, and some are – there has to be one managing or active or general partner.
And the limited liability partners, they're passive.
They don't really do anything.
They just give some money.
They invest some money initially, and so there was actually no reason for them to be liable under the law in the first place, and we can get to that in a second.
Around this time, I think there was some concern that they would be liable, and so the state started coming up with these incorporation systems.
And what that does is it creates a legal entity, which is a legal person called a corporation, and it's owned by shareholders, governed by directors who are elected by the shareholders, and the directors appoint the officers who hire all the employees.
So it's sort of a convoluted structure like that.
And what the limited liability provision of the law says is that the shareholders are only liable up to the amount of their investment, which means if the corporation goes bankrupt and you have $1,000 worth of shares, then that goes to zero, but you're not responsible for anything else.
Now, one misconception a lot of people have is they think that… Limited liability laws insulate the managers and the CEO from liability, and they generally don't.
It's about the shareholders, not about the managers.
So that's one misconception people have, so they get this kind of confused.
But to my mind, the question is why should a shareholder… Be liable in the first place for the actions of some third party.
I mean the default libertarian position is that you are responsible for your own actions.
If you're – the only way to make you responsible legally for someone else's actions is if there's some reason.
That's called vicarious liability.
Now, there are some cases where this would be the case.
Like if I put a gun to your head and then I say I want you to shoot that old lady there… And I coerce you into shooting the old lady.
Now, maybe you shouldn't get off scot-free.
Maybe you're still guilty of murder if you do it.
Maybe you get a reduced sentence because you were coerced.
But I would be responsible for that too because I played a role in that.
So the question – And the clerk tries to shoot at him.
The bullet misses, bounces off a can and shoots someone else.
It's the thief actually never pulled the trigger but the thief is charged with the murder because he set the events in motion even though he didn't pull the trigger or even have a gun.
He set the events in motion which resulted in the death of the innocent bystander.
So yeah, I mean there's interesting – I think that really comes out of common law standards but there's certainly interesting stuff around that in terms of how legal liability can be transferred.
Yeah.
Yeah, and I think there's a doctrine in the common law.
I think it's either one of transferred intent or of a felony murder doctrine, something like that, but it says what you just said.
And also, even if you have two bank robbers and they rob a bank, and let's say the store owner shoots one of the robbers, then I think that the other robber is guilty of his co-robber's death, which is a little bit too far for me, but hey, I'm not going to complain.
I mean you see the logic there.
Yeah, without your actions, this would not have come to pass kind of thing.
Yeah, you played a causal role in causing it to happen, right?
So then the question is, what about a shareholder?
What does he do?
That makes him responsible – now, let's talk about contracts first because I think we can dispose of that easily.
Like you said, in smaller corporations that are not that capitalized or don't have a lot of assets or don't have a long track record, usually to get a loan or to do a contract, then the other party is going to make the actual major shareholders sign a personal guarantee to guarantee it.
They're not going to just rest upon the assets of the corporation.
Right?
But if they do, if they just take the word of corporation, then they are basically contractually agreeing to limit their remedies to whatever assets that, quote, corporation has.
And you could do that even in a free society without this legal entity idea, which wouldn't exist, by the way.
I think this whole idea is nonsense.
And that, of course, works much better in capital-intensive industries like a factory as opposed to human capital-intensive industries like a software shop where if the people are gone – But that's it.
Like 98% of the assets walk out of the – that's what I used to say in my business meetings.
98% of our assets walk out the door every day at 5 o'clock and come back at 9 o'clock the next day.
And so there's much less remedy, of course, if it's all human capital and people can wander off.
Right.
Now, so Rothbard has written on this, and Robert Heston, who wrote a great book in the 70s called In Defense of the Corporation.
I think he was sort of a Randian libertarian legal historian, and he wrote a great book called In Defense of the Corporation.
And I think Roger Pilon, who's with the Cato Institute, has written on this too.
And what they've pointed out, and it's fairly persuasive to me, is that… This whole idea that the employer should be responsible for the torts of his employees is almost based on this feudal master-slave idea.
It's almost paternalistic.
It's called respondeat superior.
It means you're responsible for the actions of your inferiors, and that's a type of vicarious liability that we talked about earlier.
So the whole idea… Although maybe you and I could accept that an employer is responsible for his employees' torts because he's sort of directing what he does, although he's usually not directing him to commit a tort.
But even if you could make that argument, you can't argue that a shareholder is doing the same thing.
He just gives money to the corporation, and in fact, he doesn't always do that.
If you own shares in Exxon and you sell me a share, I gave you money, but I never gave Apple a dime.
I mean Exxon a dime, right?
Right, right.
So just by virtue of holding a share in a corporation doesn't mean I've ever given them any money.
And so what else would we say?
That I have the right to elect the directors?
Well, that just means I have some influence over who's hired by the company.
But lots of people have influence over who's hired.
Co-workers have influence.
To make that argument would be to say that if you voted for whoever was in power and a war crime was committed, then you would be responsible for that war crime.
No, you just – there was no foreshadowing of that.
It wasn't in the party platform to commit war crimes.
It's just that that's who you voted for and therefore you're responsible.
I mean if you can vote based on your best conscience but people then do whatever they do after that.
I don't think you can be held liable for a lack of omniscience.
I don't know.
I might actually be more subject to being persuaded on the political voting issue.
The people that voted for Hitler, I mean, they're not as evil as Hitler, I suppose.
But that was in his platform, right?
It was in his platform to dominate Europe and kill the Jews.
I mean, that was in Mein Kampf for, what, 13 years before he got elected.
So they had knowledge there.
Right.
Yeah, even if it's not in the platform, you're putting someone into a position of political power which is inherently coercive and illegitimate in the first place.
So no matter what they promise… Oh, yeah.
I certainly agree with that.
So it's not quite the same as… I agree.
It was sort of an analogy from the democratic model.
But what's interesting, I think, is that if we take the factor of the state out, there seems to be sort of two types of law or sort of two types of standards that we're talking about.
One is an objective moral legal standard and the other is whatever you contract for.
I mean you can contract for the most ludicrous stuff.
I'm going to go up to your front lawn at five o'clock every morning and do the mariachi dance in a pink flamingo outfit.
Of course, the reality is actually six.
But we'll just say it's five for this demonstration.
But I can contract for that and I may be liable if I don't fulfill my obligations to – I have the wrong color flamingo outfit or something like that.
And the way – the great thing about the stateless society paradigm is that it's all – I think it all fundamentally comes down to contracts because there's no centralized coercive agency enforcing a moral standard.
Of course, there are lots of people who would love to have liability-less shareholders.
But of course, if you say to shareholders to get new shareholders into your business, if you say, oh, shareholders are responsible, there's a plus and a minus to that, just like there is in all economic options, right?
I mean, the plus is, well, you might be liable too, but the minus is you're not going to have a whole lot of passive shareholders.
Like they're really going to know what the hell is going on and they're really going to be invested in what's happening in the company.
And so there is a real plus to getting involved in an organization or a firm where the shareholders have a liability for the losses or even the criminal actions because then you know that they're really going to be involved.
It probably will be able to raise less money but it would not have a passive shareholder base and that would have a lot more policing to it in the sort of anarchic sense.
I think it's possible.
I don't know if I see that model emerging that – I mean if it has a business advantage, it's possible.
But the thing is even – the practice that I see is that the employees of the corporation who are liable under today's law like directors and the officers – The traditional practice is for the corporation to take out DNO insurance, directors and officers liability insurance, because I don't want to be the CEO of a corporation if I might be sued for billions of dollars.
On the other hand, having to acquire insurance for that possible liability, of course, puts an insurance company in a type of oversight over you, which puts incentives for good behavior, etc., because if you start acting in crazy ways, then you're going to lose your insurance carrier or your rates are going to go up or something like that.
So there's at least a feature.
When I was insured as an executive, I wasn't allowed to fly in planes smaller than a certain size because they were considered to be two.
If I went down, then the whole technical team would be headless, so to speak.
It was really interesting.
The pages of things you can and can't do and so on.
They came in and checked my health.
Do I smoke?
All this kind of stuff.
I mean, they really were combing over me in a way that, given I come from socialist medical Canada, a doctor had never been as interested in my health and well-being as this insurance company, which I think planted probably one of the seeds for this idea that you could have insurance around a lot of things currently run by the government.
Yeah, so I would say that the size of the corporation – let's talk about one other thing here that we skipped over earlier.
Why do we have what's called firms?
Because you are asking what's the general category that corporations fall into, and it's a firm.
And under economics, a firm is an organization of individuals that have sort of a centralized kind of control and contractual relationships of a different type than I guess – Independent contractors would have.
But from the libertarian point of view, I don't know if I see a fundamental difference there, especially if you get rid of the state characterization of what's an employer and employee and what's a general contractor.
I mean the only reason we have to call people this is because of state classification rules because you need to know whether you have to collect – Payroll taxes if they're an employee, if they're a general contractor, they're not, etc.
So the idea of Coase is that you form these firms to overcome transaction costs.
But the upper limit, as Rothbard talks about, is the calculation problem of Mises and economics.
So you're going to have firms emerge that are not too small and not too big, whereas what I think would happen in a free market is I think that transaction costs would go down, as we're seeing now, because you have smaller and smaller firms.
Like me, I'm a micro lawyer.
I'm just by myself.
I don't have to hire a secretary.
I have technology, or I can farm out dictation on the web for $14 or whatever.
I mean you have outsourcing that's much easier now, so those transaction costs are going down.
So whereas in the past, some lady I'm paying $14 to to transcribe something might have been my employee, now it's just kind of an equal relationship.
And on the other side, I actually think that the size of firms on the upper side could get bigger because – If state barriers and taxes and tariffs and all that go down, then you might see more diversity on both ends.
Okay, so but given – we just talked earlier about the regulatory capture aspect.
So how would your argument go that firms would get bigger in the absence of state barriers to competition?
Well, I could be wrong about this one, but my theory – my thinking is that the state – The state doesn't give net subsidies to anyone.
It gives relative subsidies to someone.
So someone pointed out to me earlier today that almost every corporation receives subsidies.
Well, you could say that almost every human receives subsidies, but the question is do we receive net subsidies?
And if you believe we do receive net subsidies, it means the state actually produces wealth.
Which means we're all part of the state, and we're better off because of the state because we're all better off on average, and of course we're not.
The state is a drag on wealth, so it can't be giving a net subsidy to everyone.
There are some companies that do get a net subsidy like Grumman and defense contractors and companies like that.
But – Even I would say in Apple – now, maybe Microsoft is because they rely so heavily on copyright, but even Apple, I think, is harmed more than they benefit from state laws.
I mean they're taxed.
All their customers are taxed, so they have less money to spend on consumer products.
So I just think that we'd have a much freer – a much more diverse world, a much richer world in the absence of the state, and so it would allow a lot of the things that prevent companies from getting big to even get bigger.
I could be wrong about that.
I'm not sure, but I tend to think it would go both directions, and you'd have more self-employed people.
And one thing I didn't touch on earlier, this entity theory – actually, one reason I would like to get rid of it is because the government uses it as an excuse to impose regulations and taxes on corporations.
So if the government says, without our grant of limited liability privilege and our entity status we're going to give you, then the shareholders would be liable, which I don't think is correct.
I think that they wouldn't be liable anyway because they're passive.
Then – Without us granting you that, you would suffer these shareholder liabilities, so we're giving you a privilege.
So in exchange for that privilege, now we can take back.
We can tax you as an entity, which effectively taxes the shareholders twice, and we can subject you to all kinds of regulations like corporate campaign restrictions, things like that in exchange for the privilege of us granting you entity status.
So if you actually take away entity status, the state would have less of an excuse to regulate and tax businesses basically.
No, I think that's a great point, and it's something that is very frustrating when you talk to people – you talk to the general status muggles in society, and they just say, well, we'll just tax corporations.
You know, like – There are space miners on Mars that we can go and steal the kidneys of and sell them on the interstellar black market and fund all the government with.
There is no such thing as a corporation.
There are people who end up getting taxed.
I mean, it's a legal fiction and it may have some utility in a free society or not.
But I think the government loves it because it's another category of people that they can tell you they'll go on tax to give you stuff.
We'll tax the rich.
Oh, we'll tax corporations.
As opposed to, well, we're just going to take money from everyone around you, including you.
And yeah, of course, there can't be any positive subsidies in the long run.
It only maintains that illusion through debt.
Yeah.
The people with the most liability and the least benefit are the unborn.
Right, right.
So – Well, let me ask you.
What do you think about the large corporation size?
Do you think that large firms would – do you think the largeness would – we have these megacorporations, international firms, Exxon, Boeing.
Some of these companies, I just don't see how you're going to make a spacecraft or – I think – yeah,
I think – I mean just based on my somewhat limited experience in this area, I think what will – what would happen in a free society is – There would be not so much corporations as we know them where you sort of have a big box of people in them, whether it's a factory or an office building or something.
Have less of that.
The real specialty would be in geographic non-specific coordination.
I think you just lost your screen there.
You've gone a little dark.
Did your screensaver go on?
Yeah, so coordinating all of these efforts I think would be the real challenge.
If you could find a way to coordinate geographically disparate efforts, then you get all the local economies of scale.
You don't have to expect the concentration of talent.
Yes.
To occur.
Like, you know, every time you make a movie, you say, I got five actors I want to be in the movie, and you have to wait four years until those five actors are all free at the same time.
And if you could, of course, shoot different scenes of the film wherever they happen to be, you could make a film tomorrow probably, right?
So I think it's the – right now, for a variety of reasons, the best way to coordinate these resources is to put them all in the same box and then have guys walk up and down the cubicle saying, finish that, do this, give me a status, blah, blah, blah.
But I think – I think the real growth industry would be in the coordination of all these disparate efforts because the economies of scale, the fact that you could – the wider you can cast your net geographically, the more skills and talents you can get.
I think the real challenge would be the coordination.
I think that's – you would see a sort of intermediary, quote, firm or corporation who would come up who would promise and contract to, you know, you tell me what you want built and I will make it happen.
And I think that would be the real specialty because that – like learning how to do all of that would be a specialty in and of itself.
I think that because it's so transferable would be much more valuable than be containable within one organization.
If you learned how to do that in one organization, the people who knew how to do that would be bidded out of that organization in a price war that would rival the building of the space shuttle, I think.
So I think it wouldn't look quite like it is.
I think it would be more amorphous and more blobby, but with a much stricter and much more – the problem with business is always the project management, right?
I think this is as true in law as it is in software as it is in engineering.
But I think those who would specialize – In drawing these talents together and making sure all the widgets assembled in the right way, like sort of some sort of inverse planetary-wide explosion, I think would be in huge – in the biggest demand, and I think that would be a really fascinating area of business to be in.
I think so too.
I don't know if economically – I think that depends not only on freedom but on technology, as you mentioned, right?
And I think it would be more amorphous, and partly because, again, you wouldn't have these state-enforced artificial categories of employer – Employee, general contractor, whatever, and like I said, the whole economic idea of the firm is a little bit strange to me because I don't know what a firm is really because it's just a network of contracts, and these economists single out a certain type.
The employment contract is a special type.
Well, I don't think economically that has any – Categorical significance or sharp boundaries, especially in a stateless society where employment had no legal meaning.
So I think you could just – you could look at an economy of a billion people, and you could – as an outside observer, you could draw lines around different things if you wanted to.
You could see here's a company called McDonald's selling hamburgers, and here's a company that's supplying meat to them on a daily basis.
Are they part of the same firm or not?
Who cares?
I mean – In today's society, you could have an answer because they're either part of the same corporation or they're two separate corporations with a contract with each other.
But what's the difference?
Just like what's the difference if I have a secretary or if I hire someone who does the same service who's independent?
There's no economic or fundamental difference.
Right, right, and I think – The productivity is the key.
I think in all modern economies, it's a pretty cheesy thing to say, but productivity is the key and the lagging in productivity is one of the things that's majorly responsible for the stagnation in our economies.
From my own experience as an executive and manager, I would let my employees subcontract all the time.
Like, oh, we need something done.
Let's hire someone.
It's like, don't you have a friend who can do it?
Nights, weekends, anything like that.
Right.
And they would like that because they'd get to bring a benefit to their friend.
They'd get to work with their friend.
And having people work with their friends is, you know, not always, but usually it's a pretty good idea.
And so what were we as an entity?
Well, of course, we had this legal structure and whatever it is, the economic structure.
But, you know, we were this, you know, like a blob just going out, getting resources.
And it's much more efficient to do that because, you know, hiring and firing and all that is a pain in the neck and, of course, can be tricky in terms of contracts.
Jeff Tucker has got a great story, of course, about needing something programmed for his website and he found some guy in a hut in Tanzania or something like that who actually happened to have that skill set.
Right.
And could get it done and you could pay them electronically the same day.
I mean my whole – I don't know.
Dare I call it business model?
My whole on-your-knees-begging business model is reliant upon people just handing money electronically over the world over.
So all of that stuff I think has become very possible.
I mean you think of things like, of course, school gets kind of science fiction-y but 3D faxing and stuff like that.
I mean – I mean, in software, of course, it's completely easy.
You can download the software from anywhere.
Same thing with music.
You can distribute it without the CDs having to go anywhere.
That's, of course, becoming more and more the case as things go forward in manufacturing where you can have that just-in-time thing which came in where, you know, like when I reach for that widget, you put it in my hand.
Don't put it in there a moment too soon.
Don't put it in there a moment too late.
You know, with the kind of technology that you have to move prototypes around or even finish goods around through faxing, I mean, that stuff is incredibly possible and it would be fantastic to have a more diversified economic chain, I think.
I mean, much easier on the environment, much less travel.
People wouldn't necessarily feel the need to be uprooted from the communities of their youth.
You know, you can find work wherever you are.
So I think huge efficiencies.
What would that mean in terms of it being a corporation?
I just – I don't think that model would really fit.
I agree.
I agree.
I see similar types of business activities going on.
I see large groups of people working together on certain big projects.
However they organize it, I'm not sure.
I don't think it really matters.
I don't know if they would care how you classify it.
And I think you would have international trade still.
I think you might get tangerines flown in from – I don't know, Cuba or wherever, if you live where you are in the winter or whatever.
So I think you wouldn't have everything done locally.
There's a little bit too much of this localized fetishism, but I totally understand what you're talking about, having autonomy, having flexibility, having a lot more opportunities in your local area if you want to.
I think all that would emerge too, of course.
I think I read something recently about some worker – you might have heard this story – He's some employee at some large corporation, and it was discovered that for a few years he had been farming his job out to the guys in China.
Now you hear that.
That's pretty great.
He was just doing nothing all day long, just surfing the web.
It was some software program or something, so he was paying them about one-tenth of his salary.
That's great.
And they were doing a great job, and so everyone was happy until someone finally found out, and they went crazy and fired the guy or whatever.
No, no, no.
That's the guy you promote.
That's the guy you put in charge of the division, in my opinion.
Yeah, yeah.
Give him a quick ethics course and all that, but that's somebody whose get-up-and-stay attitude you really want to get going on.
Now, one thing that does bug me about corporations, and I think it bugs a lot of people.
I'm sure it does.
And this is the idea that a corporation is like a one-way money spigot, right?
So, We're good to go.
And you see this, of course – I mean the general chicanery that goes on with financial firms with this pseudo-regulation is, oh, we're going to assess 0.01 percent of your profits as a fine for all the things that you did.
And then the directors who made the decisions that resulted in catastrophic losses for hundreds of millions of people around the world, they get to keep their mansions.
They get to keep their yachts.
Nothing bad happens to them except that some money comes out of the company, which then means that usually fewer people get hired, less investment, fewer raises, maybe a little bit less bonuses or whatever.
But hoovering the money out when times are good and then if something bad happens, paying a pittance really and nothing out of your own personal bank account, I think that's what – it certainly drives me kind of batty and I think that drives what people quite batty.
So let's talk about some of the legality around that and how that might operate in the future.
No, I share your views on this, and so the thing is here, what's perverse is this is almost like patents or copyrights.
It's so arcane and so hard to understand for laymen that they get confused by all this.
And so like the Tea Party has this kind of rage at what's going on on Wall Street.
They don't quite understand it, but they know that it's something crooked going on there, right?
So what's perverse about this is here we have another case of a state… Screwing everything up and hiding its blame for the things that are screwed up and taking credit for fixing a problem that it screwed up.
So for example… And then not even fixing it.
Sorry.
In the case you gave, the directors, let's say, who do these terrible things, well, usually it's because they're cozying up to the state.
So of course the state's not going to punish them for cozying up to the state.
But if they did… Or if they don't, it's not because of limited liability law.
Limited liability law only – so the state takes credit for granting limited liability to shareholders and who would have limited liability even without the state.
And it uses that as an excuse to have to call them an entity and then tax them, double-tax them, and regulate them.
So on that side, it's totally screwed up.
So – But the whole idea that shareholders wouldn't have liability is because they're passive, which means that the people who actually do direct the activity ought to be liable, and those are the ones the state lets off scot-free.
So the only ones the state should be prosecuting, if you believe the state should be going after anyone, are the ones it lets off even though their laws don't require it.
So the case where the law should be imposing liability, it doesn't, and the cases where… It never has the right to impose liability.
It waives it and uses it as an excuse to tax the corporation even more.
So I would agree with you.
I think that we should get rid of the corporate form, of course get the state out of everything, but hold the people that are running the corporation or the firm, any business, any group of people cooperating for some endeavor responsible for whatever harm they cause by their actions.
But of course without the state, they would be much less able to cause these kinds of harm in the first place.
Yeah, I mean, without fiat currency, without driving people into homes they couldn't afford for the sake of political advantage and increased tax base.
I mean, yeah, I mean, I think we all know the ABCs of the financial crash and how wretched it's been and how much the state was involved.
And, of course, naturally, since no good deed goes unpunished, how much the free market is blamed for it.
It is – I mean, it is wretched and it is something that people – they don't understand.
They think that a corporation in its current form with its current cozying up and massive donations, of course, from the financial sector and other sectors to the government and with this too big to fail thing, which basically means you lock a gambling addict into a casino and give him all the chips he wants and then wonder why he loses money.
I mean, statistically, that's inevitably going to happen.
But people do, of course, confuse this with the free market because that's what they're told by all the people who haven't done their jobs and who will never do their jobs because they want to keep getting money to get re-elected.
And there is the revolving door between these companies.
Big corporations, the big financial corporations and the regulatory agencies.
And last but not least, I mean, the idiots go into the regulatory agencies.
I mean, this is pretty well borne out statistically that the bottom 10% of almost any class goes into the regulatory agencies.
I mean… If you're a financial whiz, are you going to go make a million dollars a month on Wall Street or are you going to pull down 80K a year as a bureaucrat who can't really get anything done in the SEC? I mean the answer is pretty clear and so you really are trying to have infants with ping-pong paddles attached to their wrists trying to bring down Andre Agassi in a tennis match.
It really doesn't – it's kind of gruesome to watch and people just make this mistake all the time.
They think the corporations are free market entities when they are state – I think that's what we mean by capitalism or the free market.
So all these fake government-distorted practices and entities, the public – It associates with what we're in favor of, and that's not correct.
This too-big-to-fail thing drives me crazy because – so the state comes in and bails out these large companies in a crisis, and then later on they use that as an excuse to break them up or to regulate them and to smear capitalism.
So it's like, well, we can't let these companies get too big because we're going to have to bail them out, and if they get too big and they crash, we're going to have a big bailout.
So the assumption is that we're going to have to bail out companies that fail.
If you just let them fail, then you would have the excuse to break them up in the first place.
And this is another huge subsidy to big business because nobody bails out the restaurant down the street.
Nobody bails out the $10 million financial firm.
But the $100 billion financial firm gets all kinds of attention from companies.
So if you get big enough, you get that advantage.
Yeah, the airlines, the auto industry, General Motors, the space industry through NASA. I don't know if you consider that private, but AIG, the big insurers, some of the big Wall Street banks.
And then they let Lehman – they let one go down just to show that it's not – But I mean it's just – it's random.
But yeah, you're right.
They're not bailing out all these little guys that are just failing left and right because of the same thing.
So that's another example of how the government favors big business.
Now, the last point that I want to mention – you can tell me what you think.
It's a drum I've been beating for some years, and I saw this pretty up close and personal in the business world – is that – I mean, originally, and who knows what it would have developed like otherwise, but originally, of course, investment was supposed to be something where you had a freaking clue what was going on.
You just sort of say, throw a dart to whatever dartboard and have your chimpanzee pick your stocks or whatever.
But you kind of were an expert.
You knew something about the business.
You were usually sort of elder statesmen of that business world, turning around and mentoring the next generation or something like that.
And in the early Amsterdam stock exchanges, it was really a club, you know, like everybody – Average guy on the street wouldn't imagine investing and so on.
This thing that's happened particularly in the post-war period is this thing that's happened where everybody is an investor now whether you like it or not.
I mean you're either going to give your money to the government or you're going to put it in a retirement fund or the government is going to steal it or Wall Street is going to steal it.
One is a definite loss.
The other one is only a potential loss.
So we'll take the one that might only wing me rather than the one that goes through my forehead.
Right.
And so there's this weird thing and there's so many different ways that people don't know about that the government funnels all of your money into the stock market whether you want to be there or not.
I mean the obvious ones are 401k plans or whatever.
Less obvious ones of course are the ways in which your pension plans are invested and other sorts of forced savings returns, investment plans for your kids, education, all that.
All of that ends up in the stock market.
I don't think they allow you to buy gold to do it.
much money that goes into the stock market that it fundamentally distorts what a corporation was originally supposed to be, which was an aggregation of investors who mostly had a clue what was going on, or at least knew someone who had a clue what was going on.
But now there's so many people who don't even know where their money is, who've put it into these mutual funds just to escape the state, and that fundamentally changes business.
It's sort of like blood boosting for athletes, you know, where you starve yourself at the blood and then jam it all back in there right before a race.
This is why stock prices go up and down so much.
I mean, because everyone is kind of in anonymously.
It's short term.
It's volatile.
It's all about what numbers come out in the moment.
It's all about how you can make a million dollars in a minute.
And it's really corrupted business to the point where there is such a focus on short term immediate gains and there's such a penalty for telling the truth that it has corrupted, I would argue, would argue a huge amount of the business culture has become corrupted by just having way too much money in the stock pocket that's kind of herded there and just creates chaos and corruption everywhere, everything it touches. - Thank you.
I can't disagree with that.
I mean I don't know the extent to which it's happening, but I can see the corrupting influence and the distorting influence on the economy of the current system.
I totally agree, and I mean look, in a free society, let's just – let's say we have a free market and we have gold as money.
We have gold standard.
And I don't know how you go on the fractional reserve banking thing, but I tend to think fractional reserve banking is a Ponzi scheme, weird idea, and I don't think it would work.
But hey, I think it should be permitted because I like Ponzi schemes.
Hey, if you want to get the payoff, then you take the risk.
That's all.
If you want your money to make money, then you have to risk it losing money because that's the only way it's going to make money.
So for me, fractional reserve banking is fine if it's up front and contractual and you want the 10% here.
Of course.
Yeah, fine.
There's no fraud.
You can't have fraud if you have a disclosure.
And I like Ponzi schemes because I like when stupid people are separated from their money.
I think it's – I'm kind of Darwinian on this.
What's that?
They're just going to go out and buy Twinkies and crappy sofas and stuff.
So yes, absolutely.
Let's get it to the more productive people.
We need to be a little bit more Darwinian in our theories, right?
So let's assume we have a gold standard.
So money is there.
It's a useful thing.
But let's say everyone is wealthier because we have a free market.
So you're going to have a lot of assets or a lot of money or you're going to make money.
What are you going to do with it?
You're not going to hold all your money in gold because it's not really a productive asset.
You're going to have some in gold and cash, plus you might have to pay storage fees at some kind of local bank if fractional reserve banking doesn't work out.
But even if it does, you're not going to put all your money in gold.
You're going to have to put your money somewhere.
So you're going to invest in things.
You're going to – or buy a lot of things, but you're going to buy land or invest in companies that you know something about.
Now, how you do that, would you rely upon professional money managers?
I don't know, but you can't imagine that being the same as this weird anonymous frenzy that we have now in the stock market.
I agree with you.
Well, but of course, imagine, Steph.
I mean – Yeah.
Yeah, right.
I mean, so that's another fundamental driver or because the government, because it's got this crushing debt, is driving interest rates into almost negative or sometimes explicitly negative territory when you have inflation.
So people are herding their money in because otherwise it's going to die on the vine.
You know, it's like, yeah, that's a good point.
That's a good point.
So I don't know if I had a whole bunch of money.
It really depends.
Some people love the thrill of investing.
I mean, they do that, you know.
There's lots of people out there who've got those hardwired extreme nervous systems where it's just like if I'm not taking a risk, I'm not alive, man.
And so there are some people who are going to want to do it but there are other people who are like if my money is sitting there and it's getting a couple of points a year and it's not in any risk and I got more than enough to live on – I don't know.
I think there are a lot of people who wouldn't necessarily – maybe they'll stick it in the bank, and the bank might do really low-risk stuff or whatever, like lending.
How are you going to get a couple of points a year?
I mean that's basically an investment, right?
Are you going to lend it to someone?
I mean unless you believe in fractional reserve banking.
This is why I brought that up because unless you think that's there, then the gold is either going to – now, you could be right that there's less of a cost of just holding cash.
You might just go put a bunch of gold in the bank.
Yeah, no, I phrased it badly.
What I mean is when you get a couple of points is that in a free market, we know that the price for everything is going to decline over time for the most part.
Oh, right.
So if you just hold your gold in the bank, right, and then right over time prices – yeah, you're right.
Maybe people would hold a lot of their estate in gold.
I don't know.
I don't know.
But you're right.
Or diamonds or whatever it is that's fixed or maybe there would be some digital currency that would guarantee value over time.
But people – I mean, I think you would generally guess you maybe get 3%, 5%, 7% a year in price declines in a free market.
Correct.
So, boy, if you want more than that, that may be fine.
Good for you.
Companies are going to need investments.
But, yeah, I think certainly for myself, I think I've got enough excitement doing the philosophy show and all that.
And so for me, it's like if I could just stick my money under a mattress and know it's going to essentially grow in value every year.
I mean, just think if you had like – It's like, well, you can spend them now and get X or you can spend it six months from now and get double X kind of thing, right?
I mean, the desire with technology is to not spend it but rather to save if you can, put off your purchases, you can get more later.
I think that would be the case with just about everything.
And this is an example of your point about how now people invest in companies they know nothing about, but you would think that in a more sane economy, they would invest in something that they know something about.
And in your example, they're really investing in gold, let's say.
They're investing in money because they know something about money.
Everyone knows something about money.
They're comfortable with that.
They see prices going down every year because we have a free market, and they know that's a good enough return for the assets they've gotten so far.
So I could see some people doing that with at least a percentage.
And then on occasion, a nephew is going to come up to them and say, look, I want to open up an ice cream stand, and will you loan me some money for that?
And you know him.
You know something about him and his character.
Yeah.
Well, when you retire, you know, I think the old thing used to be, it sort of used to be an old boys club, but no reason why it couldn't be everyone.
You know, you retire, you know something about a business, and you're going to help out the next generation.
That sort of mentor transfer would, I think, be a great place for people to invest.
You'd have the time, you'd get involved, you'd know the people, and your involvement, of course, would...
Yeah.
Salt and pepper right up here.
A little bit right up here.
A little bit.
Yeah.
But yeah, so I think that's how – I mean I would love to see existing businesses massively starved of capital because I think it just crashes around and gets hugely wasted.
In the same way, you'd love to see real estate massively starved of capital.
I mean, the 10% of housing stock in the U.S. that's unfinished is an environmental catastrophe.
Of course, you won't see environmentalists.
They're all worrying about polar bears falling off ice.
You won't see them talking too much about it.
But it's catastrophic.
What a huge waste of resources that has all been.
And yeah, so I'd love to see business have to work a lot harder to get investment because I think it's just a big sloppy mess right now.
Yeah.
All right.
Listen, I think we've had a good tour of it.
Was there anything that you wanted to add, since you are, in fact, the expert, before we close up the conversation?
No, I enjoyed it.
I always like talking with you, and I look forward to seeing you next month here in the Houston area.
Let's go through that one more time, do that bookend marketing thing.
It is Liberty in the Pines.
It's March 23rd.
At the Steve Austin State University in...
Stephen F. Austin, yep.
Sorry, Stephen F. Austin.
I couldn't make that sound if I did that.
And what was the pronunciation of that lovely town there?
Nagadoches, and they are the sister city of a place in Louisiana called Natchitoches, which is spelled even crazier.
You don't even want to try to pronounce that one from the spelling of it.
But yeah, it's up in Nagadoches, about, I think, two hours north of Houston.
So it should be a lot of fun.
What does it say with Texas?
It's like you name your towns, like some cross between an Aztec god and a Welsh village.
I mean, I can't wait to jam some more syllables in there somewhere.
Yeah, it's Native Americans.
There's a town a little bit north of Houston called H-U-M-B-L-E. Now, how would you pronounce that?
Humble.
If you're from Cockney, England, how would you pronounce it?
Humble.
That's how they pronounce it, Humble.
Humble.
I can't do it.
The Houstonians say, I'm going up to Humble.
I'm like, what?
Humble.
Fantastic.
Well, I guess I'll be seeing you next month.
Thanks again for the chat and have a great night.
Thanks.
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