
Capitalism's Fundamental Flaw - svjunkie
http://www.forbes.com/2009/11/05/innovation-ayn-rand-intelligent-technology-capitalism.html?feed=rss_popstories
======
krf
IMHO, the root problem is the corporate entity, which is a creation of the
State, and not a necessary aspect of capitalism.

The nature of the corporate entity is a problem that capitalists (including
Rand) like to avoid discussing. Limited liability naturally results in risk
taking. What do people expect with limited liability ??? If the shareholders
were actually liable for the obligations of the corporation, I think companies
would be more careful.

IMHO, only natural persons and partnerships of natural persons, without
limited liability, should be legal entities. Getting rid of corporate "shares"
also makes it harder to accumulate massive assets...partnerships get tough to
deal with when you have lots of partners.

~~~
teilo
The alternative to government supplied corporations is not much better:
partnerships and conglomorates, whereby natural persons accumulate vast sums
of wealth, individually or collectively. The government cannot forbid
corporations from forming. It does not, however, have to recognize them.
Individuals can enter freely into contracts which create partnerships and
conglomorates. However, this ends up at the same place. Instead of individuals
hiding behind a government-created fiction, they hide behind contract law,
which cannot be abrogated without undermining the nature of law itself.

Corporations, by their very nature, are a legal fiction designed to circumvent
that aspect of of the free market that punishes unconstructive behavior. Such
an entity should never be created in the first place, if the leaders of a
government had the intrinsic integrity to hold individuals accountable, rather
than legal fictions. But the same legal fictions that protect the citizens
behind corporations can also protect those who create the laws in the first
place. Thus, corporations are the invention of lawmakers who themselves use
said legal protections.

But this gets back to what TA rightly points out: Rand's assumption that the
leaders of a capitalist system have integrity is false. But this is not
necessarily a bad thing in itself. It becomes bad when that lack of integrity
is joined to ideology, for the two are not mutually exclusive, or when it
circumvents the very laws that establish said capitalist economy. If the
problem were merely lack of integrity, then pure economics would take over -
the government would succeed when the economy itself succeeded, and integrity
would be irrelevant. That is the essential nature of capitalism: It assumes
that because greed can never be eliminated, it is best to use greed to the
benefit of everyone overall.

Ideology short-circuits this process. If, for example, taxation were driven
entirely by greed, said greed would act as a sort of feedback mechanism. Taxes
would automatically be set at the level that the market can best bear without
being impeded by the taxes themselves, and thus driving down revenues.
However, if instead the goal of taxation is not to make money, but to
discourage certain activities, then ideology has trumped greed, and the
government ends up with fewer resources than they started with, leading to
higher taxes elsewhere, ad nauseum.

No system of economics is perfect, because people themselves are not perfect.
Integrity and altruism can never be presumed. In fact, we should always
presume the opposite.

~~~
krf
I have a hard time believing that an individual or partnership without limited
liability has a similar ability as a corporation to accumulate and hold assets
(unless they have a corrupt government protecting them).

The risks of operating without limited liability are rather high. The ability
to issue shares to millions of people is also rather powerful. The corporation
is a massive government subsidy to anyone who wants to manage a legal entity
with limited liability, and the ability to raise funds in a big way.

Managing a partnership or any non-government created entity with thousands if
not millions of partners is quite difficult.

Contracts cannot provide the same limited liability that the government can.

Simple example: if the driver of a car for a partnership runs over and kills
someone in the course of his job -- contracts won't stop the family of the
killed person from going after the assets of the natural persons of the
partnership. With corporations it would be more impossible to go after
shareholder assets.

Limited liability is huge; without it, lawyers would find many ways to get to
assets that they can't now.

Also, contracts are not much to hide behind as compared to the government.
Contracts can be busted, interpreted in unusual ways, etc. The limited
liability offered by the government to shareholders is rather fool-proof.

------
WalterBright
Since banks are both heavily regulated and customers' deposits are insured by
the government, one can expect capitalist market forces to go awry with their
operation.

