The Unfinishable Scroll
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Wed, 24 Sep 2008
As readers of my political website know, I lean toward libertarianism. Libertarians usually oppose government intervention in markets. However, I think the U.S. government's impending Wall Street bailout is OK if it's done the right way.
Why would I think this?
Because the bailout would reduce, not increase, the effects of government interference in markets.
Corporations, as we know them today, are creations of governments. They are extremely powerful creations. Corporations are legal "persons" with powers and privileges that no real person can possibly have. For example, corporations can own other "persons" of their own kind, and potentially can exist forever. The special legal status of corporations is the main force that lets some companies become tremendously large and powerful.
Some so-called libertarians seem to think a "free market" is a market in which corporations are allowed to run wild. This is not what real libertarianism is about! A truly free market, with only a minimum of government intervention, would not contain state-created corporations at all. A market dominated by state-created corporations is not even close to being free.
In today's world of state-created corporations, corporations have a big advantage over individuals. Workers need corporations much more desperately than corporations need workers. The corporations' extra power originally comes from the state. This extra power lets corporations grow much larger and more powerful than a truly free market would likely allow.
Today, some corporations are so large and powerful that their collapse would be a humanitarian disaster. Their failure would affect the markets in ways that could damage the lives of countless hardworking people.
Is the government justified in trying to prevent this collapse? Yes. True, a government bailout is a violation of the free market. However, the bailout is a way of correcting the effects of an earlier, and much worse, violation of the free market: the government's own creation of corporations.
The government entity that bails out the corporations need not be the same one that granted the corporate charters. There are Federal and state governments, and different departments within each of these. The point is that government power created corporations, and now government power is being used to mitigate some of the effects of that creation.
Like all modern corporations, the corporations being bailed out were not part of a free market to begin with. They were created with the help of government power. By preventing the bad effects of their collapse, the bailout would reduce the effects of government power more than it would increase those effects. Paradoxically, the bailout could make the market more like a free market.
So, should libertarians tolerate the big bailout? Yes. The bailout is a government intrusion into markets, but it will reduce the damage from a worse government intrusion that is built into our present economic system. The bailout is the lesser evil.
This toleration of the bailout comes with one warning: the bailout must be done right. It must be done in a way that prevents damage to working people, not in a way that simply lets the ultra-rich get richer.
Aside from the bailout, this same logic holds for many of the laws designed to regulate corporations. Such laws are designed to restrain corporate power that originally comes partly from the state. Viewed in this light, regulation of corporations can be a way for the state to help undo some of its own excesses.
Ideally, our society would be able to do without state-created corporations and their excess powers. This is not an impossible dream. The libertarian economist Murray Rothbard described a business structure, not backed by state power, that is like a corporation in some respects. Perhaps this structure, or other arrangements, will replace the modern corporation. But unless and until this sweeping reform happens, careful government regulation of corporations will prevent a bad situation from becoming even worse.
 On the expansion and dangers of corporate power, see especially: Ted Nace, Gangs of America (San Francisco: Berrett-Koehler Publishers, 2003), and Walter Lippmann, An Inquiry into the Principles of the Good Society (Boston: Little, Brown and Company, 1937), pp. 13-19, 308-310.
 Murray N. Rothbard, Power and Market (2nd ed.; Kansas City: Sheed Andrews and McMeel, 1977), pp. 79-80.
posted at: 23:59 | path: /political | persistent link to this entry
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