Vaguely Defined Property Rights Indeed

December 19, 2008

Author’s note: I originally and mistakenly attributed some of Stephan Kinsella’s quotes to Peter Klein. I’ve made the necessary corrections. My apologies to Klein and Kinsella.

Anyone with even a tangential connection to the blogosphere of the libertarian left has probably caught wind of the shit-storm set off by Roderick T. Long’s Cato Unbound article, “Corporations versus the Market; or, Whip Conflation Now.”

If you have ever knocked over a hornet’s nest, kicked an anthill or tossed holy water on a coven of vampires, then you will not be surprised that the response has been fast, furious, scattered and heated. The battle lines were quickly drawn in blogs and forums. In this corner, the “Left”, concerned with the role that government plays in enabling big business privilege. And in this corner, the “Right”, who, while acknowledging the role of government in impeding the free market, don’t see any particular reason to oppose the structure of business-as-usual and additionally find it praiseworthy on many counts and the natural result of respect for property rights.

Kevin Carson has recently come to Long’s defense in what serves as a good summary of some of the back-and-forth. The first part of Carson’s analysis focuses on Peter Klein’s reaction to Long so this too is where I started my catch-up work on the debate. I did not get very deep into the comments, when I noticed something unexpected: Stephan Kinsella providing an excellent argument in support of a 100% labor-managed economy.

Now this is likely to come as a surprise to Stephan because he did so in the midst of supporting Klein’s attack on the idea of labor-managed firms as a major focus of the left. Klein says,

I’m baffled by the left-libertarian fascination with worker-owned and -managed cooperatives. As I mentioned in my post, this strikes me as a purely aesthetic preference — power to the workers, down with cubicles and pointy-headed bosses!

Klein is clearly not a fan of arbitrary or aesthetic decisions in this context nor should he be. I also think that principles of justice in business contracts must be something more, something coherent and consistent.

So what is Kinsella’s KO argument in favor of labor-management?

It is not even clear that an employer ought to necessarily be responsible for his employee’s torts–the doctrine of respondeat superior. I have yet to see a careful libertarian analysis justifying respondeat superior. Without RS, you can’t even hold the employer (whether it be a sole proprietorship, partnership, corporation, etc.) responsible for acts of employees. So you would not even reach the question of whether shareholders are themselves further responsible for the debts of the employer-firm.

Why should shareholders be personally liable for damages caused by the actions of an employee of the company they own stock in? After all, the employee is another individual. He is responsible for his own torts. Unless you can show some kind of causal nexus, like a conspiracy, why should other individuals be responsible? People simply assume that if the shareholder “owns” a part of the company, then “of course” they “should” be personally responsible for its debts (which include damages for employees’ actions, due to respondeat superior). But why is this?…With such a loosey-goosey implicit theory of causation, almost anyone the corporation deals with is guilty of “aiding and abetting” the company, and thus should be personally liable for torts committed by its employees. Every ship a package by FedEx–well, you gave them money, so you are liable! Ever bought a McDonald’s burger?–you are liable for the hot coffee spill in that old lady’s lap. Ever held ownership in a fund that holds bonds for McDonald’s (lent them money)? Well, you’re again liable. The little lady who mops the floor at the Kroger’s–she’s helping them to commit crimes–break her windowz!

“Why is this?” indeed. But once I read this, I was more baffled at why Kinsella supports anything less than 100% labor-management. After all, the capitalist employment contract is one where labor is de jure considered not responsible for its actions. David Ellerman explains:

Why don’t the workers have the labor claim on the produced outputs (as well as the symmetrical claim against them for the used-up inputs)? The firm ownership myth is only the first line of defense. The real defense is the employment contract which puts the employees in a non-responsible position of a hired factor “employed” by the employer. But the labor theory of property is the property theoretic expression of the usual juridical canon of assigning legal responsibility in accordance with de facto responsibility…The criminous employee [example shows] how de facto responsibility is not transferable and how the law only pretends that labor has been alienated (until a crime has been committed). Thus the capitalist appropriation of the product (including the liabilities for the used-up inputs) is based not on the “private ownership of the means of production” but upon the legal validation of an inherently invalid contract which pretends that human actions are transferable like the services of things.¹

Now this at first might lead people to object, even Marxists, that, “No, it’s about who owns the firm. Ownership of the means, you know?”. But this would be what Ellerman calls the fundamental myth of capitalist property rights:

The fundamental myth can now be stated in more precise terms as the myth that the residual claimant’s role is part of the property rights owned in the capital-owner’s role, i.e., part of the ownership of the means of production.

It is simple to show that the two roles of residual claimant and capital-owner can be separated without changing the ownership of the means of production. Rent out the capital assets. If the means of production such as the plant and equipment are leased out to another legal party, then the leasor retains the ownership of the means of production (the capital-owner role) but the leasee renting the assets would then have the residual claimant’s role for the production process using those capital assets. The leasee would then bear the costs of the used-up capital services (which are paid for in the lease payments) and the other input costs, and that part would own the produced outputs. Thus the residual claimant’s role is not part of the ownership of the means of production.¹

It’s unfortunate really to think of all of those Marxists gnashing their teeth over “ownership of the means” as the source of product appropriation or Lockeans pointing past everyday intuitive examples of borrowing to emphasize how appropriation only makes sense on unowned state-of-nature resources or, likewise for them, current ownership of the resources. Anyone who as ever borrowed any capital knows that ownership of the means doesn’t allow the owner to appropriate the result by default or the involvement of resources owned by others doesn’t prevent appropriation for the user by default. It is the person responsible that appropriates the product.

Now Kinsella might object that non-criminal actions don’t count. But this seems rather like an aesthetic choice, to borrow Klein’s characterization. Why should someone be considered responsible if the outcome threatens the capitalist but not if it benefits the capitalist? Also, if Kinsella can’t find a libertarian defense of RS for tort, is he claiming that he has one for the case where the action is not injurious to a third party? If someone is hired to bake a cake in one instance and carry out a hit in another, both contractual obligations of employment, it would be inconsistent to hold the employee responsible for the murder in one case and not the cake in the other. If the hit man produced a contract showing that he clearly signed over responsibility to the employer, it would do him no good in avoiding prosecution. Yet if the baker ever attempted to accept responsibility for the cake so that he could claim the profits from its sale and pay the capitalist back for any capital liabilities, he would be quickly reminded of his contract.

It seems to me that support for a consistent application of the assignment of the residual claimant to the party de facto responsible for using up inputs and producing outputs would be much more than purely aesthetic. And it is quite rational that the RC would prefer to manage, directly or otherwise, the firm, thus my contention that 100% labor-management is the inevitable outcome of a consistent libertarian legal order. I would ask Kinsella upon what basis he would rest capital’s claim to the RC role? I would urge him however to be very careful lest he pull on a thread that unravels the whole sweater of private property theory.

Without a compelling principle, it looks as if Kinsella would be left with only one course of argumentation if he is not ready to join the labor-managed camp: to support the RS doctrine on consequentialist or, dare I say, aesthetic grounds. Klein has no shortage of arguments already lined up to demonstrate how

the worker-owned cooperative, the partnership and proprietorship, the decentralized “open-production” system, all suffer from serious incentive, information, and governance problems, almost none of which are mentioned in the anti-corporation libertarian literature. I suspect this literature’s preference for small-scale production is based primarily on aesthetic, rather than scientific, grounds.

To address these perceptions of labor-management would take much more space than I wish to dedicate here. I plan to return to it because I agree with Klein that it is important to address them. He is clearly annoyed with Long in his followup for not responding to the literature.

As I pointed out in my post, there are substantial technical literatures in economics, organizational sociology, and business law on the benefits and costs of alternative organizational forms, and Roderick does not grapple with these literatures at all, either in the original post or in the reply.

In all fairness, however, Carson, in a comment on Klein’s 2007 article “Vaguely Defined Property Rights”, suggested that Klein investigate some of Ellerman’s ideas of the sort I’ve presented here. I haven’t seen a public reply or analysis from Klein. If one exists, I would very much like to read it. I’m also not sure if Klein is in agreement with Kinsella about the doctrine of respondeat superior.

But, in the meantime, I would encourage Klein, Kinsella or anyone to consider for the sake of argument that the listed problems with labor self-management are real and unavoidable and simultaneously the fundamental myth I described is also acknowledged as such. Should then libertarians choose efficacy over consistency? Why should performance be a more important consideration for libertarians than consistent legal treatment of inalienable responsibility?

I suspect that if the state were shown to be able to produce the highest performance solution to a problem with fewer “incentive, information, and governance problems” (after all, they can ignore any pesky accountability), few libertarians (at least the anarchists) would embrace statism; instead they would reject these problems as primary considerations. Perhaps, as Ellerman says,

The membership rights in a democratic firm must join the other  nonmarketable and inalienable human rights in the ignoble  status of being “market imperfections.”²

1 Ellerman, David. Property and Contract in Economics: The Case for Economic Democracy. Cambridge MA: Basil Blackwell Inc. 1992.

² Ellerman, David. The Role of Capital in ‘Capitalist’ and in Labor-Managed Firms. Review of Radical Political Economics. Winter 2007.

12 Responses to “Vaguely Defined Property Rights Indeed”

  1. Kevin Carson Says:

    Brilliant post. I wish I’d had been able to include this in Chapter Nine before I sent the org theory ms off to the publisher.

  2. Neverfox Says:

    Kevin,

    Many thanks. I’m very flattered. But it’s exciting that your book is being born. Congratulations.

  3. Stephan Kinsella Says:

    Kevin, this isn’t brilliant. It’s almost incoherent. These arguments depends on so many “pro-worker” type concepts and assumptions it’s difficult to untangle them. I’ve argued–I think very clearly–for why I think someone who hires another person to commit a crime is guilty as a co-conspirator, in Causation and Aggression. It does not rely on these bizarre notions of who owns the means or has “de jure” control, etc.

    A few comments… “the capitalist employment contract is one where labor is de jure considered not responsible for its actions.”

    It’s astounding to me that this passes for reasoning. First, calling it a contract is a bit weird. I agree to pay you money for doing X. If you want to quit, fine. If I want to fire you, fine. But for now, I’ll pay you money for doing X.

    Who says labor is not “considered responsible for its actions”? Individuals–which includes even union workers, I suppose–are responsible for their actions, sure. What are you jabbering about? Has libertarianism become so distorted in the eyes of the leftist fellow travelers?
    “Why don’t the workers have the labor claim on the produced outputs (as well as the symmetrical claim against them for the used-up inputs)?”

    Because they don’t own the capital? Because that’s not the deal? Jesus, this is not that hard.

    “The firm ownership myth is only the first line of defense.”

    Here we go with the Marxoid BS. Kevin I cannot believe you think this is brilliant.

    “Now Kinsella might object that non-criminal actions don’t count. But this seems rather like an aesthetic choice, to borrow Klein’s characterization. Why should someone be considered responsible if the outcome threatens the capitalist but not if it benefits the capitalist?”

    I have no idea what this dude is trying to say.

    “Also, if Kinsella can’t find a libertarian defense of RS for tort, is he claiming that he has one for the case where the action is not injurious to a third party? If someone is hired to bake a cake in one instance and carry out a hit in another, both contractual obligations of employment,”

    Of course, I adhere to the Rothbardian idea of contract as mere transfers of title to property, not as enforceable obligations or promises. So this is way off base. See my A Theory of Contracts: Binding Promises, Title Transfer, and Inalienability.

    “it would be inconsistent to hold the employee responsible for the murder in one case and not the cake in the other.”

    I am really mystified at what you are getting at. What do cakes have to do with murder? My view is that the person killing someone is responsible, as are others in cahoots wiht him–whether it’s an “employer” or not.

    “If the hit man produced a contract showing that he clearly signed over responsibility to the employer, it would do him no good in avoiding prosecution.”

    Okay, true. Because he is a cause of the murder that occurred. This is elementary and easy.

    “Yet if the baker ever attempted to accept responsibility for the cake so that he could claim the profits from its sale and pay the capitalist back for any capital liabilities, he would be quickly reminded of his contract.”

    But the employer who orders a killing is responsible because two people cannot make an agreement to affec the rights of a third party (the victim). But they can agree among each other to whatever they want, so long as they are not violating others’ rights. In the case of the cake, if I understand it, they’ve agreed so certain titel transfers as between themselves. These agreements are legal since they do not aggress against outsiders. Dude. You are way off base here.

    “I would ask Kinsella upon what basis he would rest capital’s claim to the RC role?”

    I would answer if that question were in non-Marxoid English.

    “I would urge him however to be very careful lest he pull on a thread that unravels the whole sweater of private property theory.”

    Private property does not need a defense. What needs a defense is violence against others–force used to invade or stop private property arrangements.

    “I’m also not sure if Klein is in agreement with Kinsella about the doctrine of respondeat superior.”

    Well, I do know that, so far, he has not broken my windowz.

  4. P.M.Lawrence Says:

    Er… the cake/murder comparison can also be read as a test for the consistency of the theory, not simply as an assertion that these things really are the same. It shows that any theory which cannot distinguish these things is either wrong or incomplete (or that they are essentially the same after all). SK’s arguments that they are not the same are outside arguments, not part of the usual theory. The arguments that the baker sold any interest and responsibility in the cake to his employer are the same as those for the killer, under the usual theory. The outside argument that the killer can’t shuffle off personal responsibility isn’t part of the usual theory. We can see that because the usual theory claims that people can shuffle that off by buying shares – that the share purchase contract achieves an indemnity for the purchaser. If you complete the theory by bringing in outside arguments, that ruins any consistency of the theory with the idea that contracts buying shares, between two parties, can indemnify purchasers from any separate claims of third parties.

  5. Technorino Says:

    I think ill buy your book Kevin :D


  6. […] 21, 2008 Last the other night, not long after publishing my first real post, I received a comment from the subject of my post, Stephan Kinsella, who continues his recent trend […]

  7. Danny Shahar Says:

    Hey, cool first posting. I’m having some difficulty following your argument, and am wondering if perhaps you would be willing to clarify. As I understand it, the way that the capitalistic wage arrangement is justified is by characterizing labor as a service, much like construction is a service. If I pay you to build a house for me, then I own the house, not you. In the same way, if I “hire you as an employee” to build a number of houses on my behalf, and pay you to do that, then the arrangement is similarly structured so as to give me title to those houses. Can you help me to see why this comparison is flawed?

    With the regard to employees not being liable for a certain range of actions they perform as employees, it seems like a similar sort of situation is borne out in the following example: You operate a delivery service, and I call you up and ask you to go to a certain address and pick up a package that’s there waiting for me. You agree, and drive over to the address, find the package, and start off towards my house. On the way, you’re stopped by the police, who explain that the box you took didn’t actually belong to me in the first place, and you’ve effectively stolen it on my behalf. Luckily, you recorded our conversation, and show the cops that actually I was the one who sent you, on the basis that the package belonged to me. It seems to me that if you had no reason to believe I was lying, you would have a pretty decent claim to being innocent of any wrongdoing. As the one who tricked you into stealing, I should be the one to blame. In the same way, when an employee, in the reasonable course of performing her job, violates the law in some way, then it seems somewhat fair to say that the violation wasn’t her fault, but was rather the fault of the person or organization which told her to do what she was doing (ostensibly with the implicit assurance that what she was doing was legal). Obviously, if she was doing something that she should have foreseen to be wrongful or potentially dangerous, or if her actions weren’t directly related to the performance of her appointed task, then the blame would lie with her. But as I understand it, that’s pretty much all that the existing rule says. Just like you don’t do anything wrong when I trick you into stealing, and I should be held responsible for the resulting damage, an employee should not be held responsible for damage resulting from her simply doing her job. Do I have that wrong?

  8. Neverfox Says:

    Hey, cool first posting. I’m having some difficulty following your argument, and am wondering if perhaps you would be willing to clarify.

    Hey, Danny, no problem. I wasn’t really trying to put forth a full-fledged argument (yet) so it’s no surprise that you have questions. Your home builder examples don’t contain all the necessary details to give a full answer but I’ll do my best to fill them in.

    As I understand it, the way that the capitalistic wage arrangement is justified is by characterizing labor as a service, much like construction is a service. If I pay you to build a house for me, then I own the house, not you.

    Well, it is interesting that you selected construction. Now I’m assuming here from the juxtaposition of your next example, that you aren’t running a construction company yourself. In that case, I would think it is uncontroversial that you are a customer and not an employer of this hypothetical home builder. Therefore, you own the house because you contracted to buy it. The home builder is bearing the costs and is in direct control of the execution of their services. They would pass these costs on to you as part of the price.

    In the same way, if I “hire you as an employee” to build a number of houses on my behalf, and pay you to do that, then the arrangement is similarly structured so as to give me title to those houses. Can you help me to see why this comparison is flawed?

    So in this example I take it that you are in the home building business. What you haven’t made clear is if you are a co-laborer (e.g. a manager, entrepreneur), the owner of the capital assets, both, or neither (just a big customer). To the extent that you are a co-laborer, you would share responsibility for bearing the costs of production (labor and used-up capital).

    There are factual problems with calling labor a service in the context of production (as opposed to real services). First, this view attempts to treat labor power as a commodity that is transferred to the employer who then “utilizes” it to make the product; but labor services aren’t transferable. Consequently, to claim that some of the builders were simply selling a service would be to sever the causal connection between their actions and the result of their actions in producing tangible, alienable property in need of appropriation. The juridical principle of imputation says that people should be responsible for the results of their intentional and foreseeable actions and can’t contract out of that responsibility. The only way to structure the residual claimant role such that it doesn’t conflict with fact is to have labor hire capital (buying or renting inputs, insuring against loss etc.) rather than capital hiring labor.

    The point of all of this is not to determine who gets final title. That can always be arranged through various transfers. What matters is who gets first title and that appropriation and transfer happen consistently and logically, the consequence being a change in the right of control over the execution of work along the way.

    Obviously, if she was doing something that she should have foreseen to be wrongful or potentially dangerous, or if her actions weren’t directly related to the performance of her appointed task, then the blame would lie with her. But as I understand it, that’s pretty much all that the existing rule says. Just like you don’t do anything wrong when I trick you into stealing, and I should be held responsible for the resulting damage, an employee should not be held responsible for damage resulting from her simply doing her job. Do I have that wrong?

    No you don’t seem to have it wrong. When I mention criminous employees, I’m only referring to those that do foresee the action “to be wrongful or potentially dangerous”. In those cases, she would be responsible for damage resulting from “simply doing her job”. Likewise, in producing the product, I think you would be hard-pressed to claim they didn’t foresee it or were tricked into doing it.


  9. […] 27, 2009 My post “Vaguely Defined Property Rights Indeed” was, at its core and in its title, a response to Peter Klein’s involvement in the […]


  10. […] Vaguely Defined Property Rights Indeed (Instead of a Blog) […]


  11. […] seriously then wage labour contracts are tough to justify as they appear to assign legal responsibility where there is no de facto responsibility. It also makes it hard to see how there could ever be a legitimate contract that involved one party […]


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