Friday, October 21, 2005

The Corporation and the State

The existence of the corporation (and such similar entities as limited liability companies) encourages business and capital formation by mitigating investors' personal risks. Because the corporation is state-sanctioned, some apologists for the state like to argue that the existence of the corporation is a proof of the indispensibility of the state.

The existence of the corporation, in fact, proves no such thing. Absent the state, investors could indemnify themselves through private contractual arrangements, that is, insurance pools.

The state exists because powerful individuals and coalitions with an agreed agenda find it convenient to enforce that agenda through an entity that has a monopoly of power in a geographical area. The desirability of a particular state can be judged only by the extent to which its agenda fosters the unforced evolution of peaceful, voluntary, social and business arrangements.