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L. Neil Smith's
THE LIBERTARIAN ENTERPRISE
Number 576, June 27, 2010

Mercantilism is the same thing that we now call "fascism"


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Corporations, Mercantilism, and Capitalism
by L. Neil Smith
lneil@netzero.com

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Attribute to The Libertarian Enterprise

People tend to have mixed feelings about corporations. Just as it's said that "Everybody wants to go to heaven, but nobody wants to die," it's equally true that everybody wants a secure job with good pay and generous benefits, but nobody wants to spend their lives in a cubicle, or on an assembly line. Likewise, everybody wants inexpensive goods and services of a reliable, predictable quality, but nobody wants to surrender their freedom of personal choice or individual sovereignty.

Unfortunately, corporations, especially when they're controlled by individuals who don't take the long view, often seem to find it more convenient or profitable to override or ignore those values—as well as laws written to protect them—than to observe and respect them. In this, they are not unlike government. If we seek freedom, they must be opposed and resisted, whenever necessary, exactly like government. Clearly, it is no better to be oppressed by a corporation than by government.

Corporations are properly associated with mercantilism, rather than capitalism. Mercantilism is a system under which government grants special status to one or more company at the expense of its competitors. The British East India Company, for example, possessed an exclusive, royally-granted "right" to conduct trade between India and China, on the one hand, and the British Empire for more than 250 years.

Private capitalism, by contrast, is a system under which various enterprises compete in the marketplace by offering the highest quality goods and services they can, at the lowest possible prices. Progress occurs as individuals and companies strive to raise quality and lower prices.

The infamous 1773 Boston Tea Party, was as much a revolt against mercantilism (which is the same thing that we now call "fascism"), and the monopolistic British East India Company, as it was against the latest British government tax on tea. Scottish moral philosopher Adam Smith's famous Wealth of Nations was published in 1776 specifically to complain about mercantilism and make a powerful case for private capitalism.

A corporation is a group of individuals who create or acquire an organization to which they want government to grant special powers and immunities. One of these immunities is "limited liability". Whenever someone sues the corporation successfully, all they can ever hope to recover is whatever wealth is in the name of the corporation. The corporation's owners—the individuals who are actually responsible for whatever the corporation does—are otherwise immune. The accepted "legal fiction" is that the corporation is a person, in and of itself, an individual with rights, whose responsibilities do not extend beyond its corporate boundaries, and are not the same as its owners'.

Most corporations make periodic payments to their owners called "dividends", sharing profits and allowing money to escape the the corporate boundary into private hands where it is immune to demands on the company, a formula for acquiring enormous wealth at little or no risk.

In other words, if my dog bites you, you can sue me. But if I incorporate my dog, he becomes his own person, and I can't be held responsible for what he does. (I'm not absolutely sure of this theory with regard to dogs, but it's what appears to happen with regard to corporations.)

It is said this "legal fiction"—which I always thought had arisen around the time of the 14th century Hanseatic League or something—is necessary to encourage business, and that without it the free enterprise system couldn't function. It's interesting to observe that the free enterprise system seemed to function perfectly well until the middle of the 19th century, around the time of the War Between The States, which some historians believe was fought mostly to benefit corporate sponsors of Abraham Lincoln and the Republican Party.

Historian Gabriel Kolko—no friend to free market capitalism, but a canny and accurate observer—has written that toward the end of the 19th century, corporations had grown so large and unwieldy that they needed government help to protect them from fresh new competition entering the market. Limited liability was an outright gift to them, as were so-called "antitrust laws", like the Sherman Act, which large institutions could deal with easily through their legal departments, but which put smaller, newer starter enterprises at a very serious disadvantage.

Thus corporations are founded on a lie, and they often represent at least as grave a danger to individual life, liberty, and property as governments do. The left, which generally despises all business enterprise, whether mercantilistic or capitalistic, often exposes corporations for their inhumane and irresponsible policies.—in hundreds of offerings from Upton Sinclair's The Jungle to Silkwood to Erin Brockovitch. Protective legislation on the behalf of corporations has retarded competition (driving prices higher than they would otherwise be), stifled progress (corporations already have a reputation for intimidating or buying out innovators in order to stay in control and retain their "share" of the market), and allowed big corporations to become the bloated, clumsy monstrosities they are today.

In the long run, libertarians must be neither pro-corporate nor anti-corporate, but consistently advocate individual rights. The following measures are intended to benefit the individual by removing the results of government interference in the market on the behalf of corporations.

First and foremost, limited liability must be abolished, along with the "legal fiction" that the corporation is a person in its own right. Limited liability unjustly allows the owners corporations to escape the consequences of the harmful acts of their "agent", the corporation.

On the other hand, as long as that "legal fiction"—or lie—is allowed to stand as a privilege granted by government, to that extent, the corporation is a creature of the government, and must be as fully restrained by the Bill of Rights as the government is supposed to be. This means that corporate strictures on free speech, or the carrying of personal weapons must be stricken down, as they might not be if the corporation were truly private property, and not an extension of the state.

In a society without limited liability, advocacy groups could be sued, if certain damaging measures they support become law. A recent example is the National Rifle Association, which has cynically and despicably endorsed what would amount to a new Alien and Sedition Act—legislation that would officially muzzle corporate criticism of the government by its rival organizations—in exchange for being granted immunity to it, themselves. At the same time, environmental groups would have to calculate cost versus benefit for everything they propose.

Corporations are often criticized for being interested only in profit and loss. And yet, that is exactly how it should be; their first obligation is to their shareholders. It is up to the rest of us to create and maintain a civilization in which profit comes easier and loss is less likely if corporations behave like the decent adult human beings they falsely pretend to be.

Second only to abolishing the lie of limited liability, serious and meaningful tort reform—in the form of the British "loser pays all" model—must be given the highest possible priority, trial lawyers be damned, in order to discourage frivolous or mercenary lawsuits.

Next, all corporate taxes must be repealed. This is not intended as any kind of favor to corporations. The left seems chronically unable to learn that corporations do not pay taxes, but pass them on to customers who, as a result, get taxed twice. Eliminating corporate taxes would make goods and services cheaper, raising living standards, and enabling companies to offer more employment than is presently the case.

At the same time that we get rid of limited liability, abolish sovereign immunity (the doctrine that "the King can do no wrong") as well as fractional reserve banking, another business lie encouraged by government. This would mean smaller government and much smaller corporations.

Another thing that has to go is the capital gains tax. Americans are frequently criticized for having little or no savings. Clearly, if a society taxes something—people's savings or the interest they earn, for example—there will be less and less of it. This reform would change all of that, help stabilize the economy, and underwrite progress, as the savings were used to finance new and innovative business.

As this chapter is being written, a particularly evil corporate scam is being exposed in which homeowners, hundreds of thousands of them, trying to avoid foreclosure in a government-wrecked economy, have renegotiated their loans under federal relief programs, only to discover that their homes have been sold out from under them by the bank, often to itself, without proper notice. Could this happen in a society where corporate shareholders and directors can be sued, not just for their corporate holdings, but for their personal assets, as well—or possibly arrested and jailed—for perpetrating such a fraud?

Also at the moment, most of the short-span attention of the news media is focused on the oil well disaster off America's gulf coast. The well in question is located under a mile of water where it could only be discovered and extracted with a great deal of very expensive technology.

Drilling that far out at sea was made necessary because petroleum producers are currently forbidden by federal and state governments—usually driven by environmental pressure groups who hate, loathe, and despise all human progress and prosperity—to drill any closer, or on the land itself. That's one of several reasons gasoline prices remain high. To some extent, high gas prices may also represent a frightened attempt on the part of oil companies to "cash out" before what they see as the inevitable disaster, not of "peak oil" (one of the more idiotic hoaxes of our times) but the final collapse of a calamitously mismanaged economy, a phenomenon we might term "peak mercantilism".

There are alternatives—we are not speaking of wind or solar power here which are mostly hoaxes, subsidized by government—which could have made this disaster unnecessary. Those in control of the oil corporations are well aware of all of the new information emerging in their field: the abiotic (non-biological) origin of petroleum, the gradual replenishment from below of old "exhausted" oil fields, and the development of oil recovery and regeneration by means of thermal depolymerization.

In an economically healthy regime, unburdened by dinosauroid corporations, and filled with new, fresh, "free range" enterprises, these facts—and perhaps other developments, like catalytic or "cold" fusion—could be working for us now, to cure the economic mess we're in and set our feet back on the road to a better, brighter tomorrow.


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Four-time Prometheus Award-winner L. Neil Smith has been called one of the world's foremost authorities on the ethics of self-defense. He is the author of more than 25 books, including The American Zone, Forge of the Elders, Pallas, The Probability Broach, Hope (with Aaron Zelman), and his collected articles and speeches, Lever Action, all of which may be purchased through his website "The Webley Page" at lneilsmith.org.

Ceres, an exciting sequel to Neil's 1993 Ngu family novel Pallas is currently running as a free weekly serial at www.bigheadpress.com/lneilsmith/?page_id=53

Neil is presently at work on Ares, the middle volume of the epic Ngu Family Cycle, and on Where We Stand: Libertarian Policy in a Time of Crisis with his daughter, Rylla.

See stunning full-color graphic-novelizations of The Probability Broach and Roswell, Texas which feature the art of Scott Bieser at www.BigHeadPress.com Dead-tree versions may be had through the publisher, or at www.Amazon.com where you will also find Phoenix Pick editions of some of Neil's earlier novels. Links to Neil's books at Amazon.com are on his website


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