Randomly browsing the blogosphere for an interesting libertarian argument, I was guided by Catallarchy.net to Eric Raymond's Libertarian FAQ, and found some of his statements deeply disturbing. By asking "What would libertarians do about concentrations of corporate power?", he implies that a) corporate power is malignant, and b) should be dealt with. Moreover, his answer to this false issue is even more flawed:

Create a more fluid economic environment in which they'd break up.

Why on earth should a successful and big corporation be forced to break up? Aren't free-market economists mostly opposed to antimonopoly regulations that prevent the market to have its way and deal with the monopolist?

Worse yet:

We'd abolish the limited-liability shield laws to make corporate officers and stockholders fully responsible for a corporation's actions.

Is this a blatant attack on foundations of laissez-faire capitalism, or is there a true reason to believe entrepreneurs should be held responsible for their business actions, and possibly forced to commit seppuku if they go bankrupt?

Let's define what limited liability means, and why it is good for both the businesses and their customers.

Although the implementation in various countries differs, business owners are usually held responsible for their actions only up to the amount they have invested. That means the creditors can't come knocking on their door one morning, and claim their personal property. Their liability is limited.

Likewise, unlimited liability means the entrepreneur can become a helpless toy in the hands of his creditors, and they can come knocking on his door one morning.

Limited liability does not mean no liability. Corporations are regulated by laws, and are ultimately held accountable by their customers. Customers decide whether a firm has made a mistake, and how it should be punished. With zillions of attorneys who declare themselves ready to sue, customers have effective means to correct corporate wrongdoing. And they do use their power.

The most unaccountable corporations tend to be those that are state-owned, paradoxically so, maybe because state does not really want to sue itself.

By limiting their liability to their invested money, stakeholders can motivate the management to be bold and innovative. There is still a huge amount of risk, but not the fear of total destruction. It's liability within reasonable bounds. And it's precisely why we saw such an enormous growth of wealth in the 20th century, driven by bold and innovative corporations. They would not prosper without satisfying their customers, that should go without saying, right?

Finally, if the libertarians of this sort had their way, and established a libertarian state (a bit of oxymoron I know), the resulting free market would reduce "corporate power" to a minimum level known from Econ 101 - as an effect of perfect competition. There would be no need to enforce unlimited liability because the market itself would quickly obliterate failed companies.

Not that we're going to see that anytime soon.