LIMITED LIABILITY IN A MARKET ANARCHY

In essence, real "Capitalist insurance" is more like placing a bet with an insurer (doesn't matter if it's a big company or a "friendly society" or just one guy) that whatever you're insuring against will happen to you. He's betting that it won't, and if he's any good as a bookie, he sets the odds of the bet so that you and everybody else will wind up paying enough into the risk pool that it more than compensates for the pay-outs to those people in the pool who win their bets.

With life insurance, you "win" by dying.

You got something against bookies?

I'm not sure I can explain this simply, but I'll try.

Lots of people believe in free markets. In normal free markets, anybody who has a particular product can sell it, and anybody who has the funds can buy. The price is set by whoever will sell at the lowest price versus whoever will buy at the highest price. It's possible that the guy who's willing to sell at the lowest price among all the sellers, is a fool. And it's possible that the guy who's willing to pay the most for the product is also a fool. But those fools will tend to be the ones who decide what the price is. When it reaches the point that nobody is willing to sell for the highest price a buyer will pay, and nobody is willing to buy at the lowest price a seller will sell, then there is no market until some fool comes along who will bridge the gap.

Now, there are a few situations where free markets turn perverse. One of them is banking. Bankers sell money today in exchange for more money later. And when people who get bank loans then put their money back into the bank, and people they buy from also put their money back into the bank, the bank can loan far more money than it actually has.

Another is markets themselves. If what you sell is the right to buy and sell in your market, at a fee per transaction, it turns out that markets are inherently monopolistic. The biggest market can outcompete all other markets unless they have some special ecological niche they can survive in that is not in direct competition with the biggest market.

A third is insurance. Larger insurance companies can outcompete smaller insurance companies, and markets get distorted by that. In a sort of reverse on banks, you pay them money today for the possibility of more money later. The bigger the insurance company, the more effectively it can invest your money, and the more effectively it can lobby the government, etc.

Could we run insurance like a market, where you put up your insurance policy for bids and out of the whole public who wants to sell insurance, the fool who will insure you at the least price gets the deal? No. He would have to put his money in escrow or you would not know whether the lowest-price fool would still have his money when you needed it. That business model does not work.

Instead, the largest insurance company has the best data about how previous insurance policies have gone, so they have the best information about how often they will have to pay off. You, as a customer, have very little information about how likely your insurance policy will actually have to pay off.

People make various arguments about free markets optimising or satisficing various social goods. Competition will tend to give you the lowest prices and the highest quality etc. Monopoly cannot persist because new competitors can move in and undercut the monopolist cheaper than the monopolist can push them out. Etc. All of these arguments work less well for banking, insurance, and market transactions than they do for markets in other goods.

When I call it "a snare and a delusion" I'm maybe overstating the case. But the arguments that most people here believe against fractional-reserve banking are not that different from the arguments I have vaguely sketched against insurance as it gets practiced today.

The kind of "Tough luck, lady!" attitude toward the co-op's visitors embodied in Counselor Sandfort's "Enter at Your Own Risk!" notice would tend to alienate customers and vendors alike. Given other options, people might prefer to take their money someplace other than Counselor Sandfort's unwelcoming "Screw You, Buddy!" farmers' co-operative.

I'd take my money there preferentially.  They don't get to lie to me per the poisoned beef example, 'cos that's fraud and all that (I do ask my local farmers how they raise their meat).  But if they're going to assume that I'm a normally-competent adult capable of making my own risk assessments, I will be immensely grateful.

I was required to take Dupont Corp.'s special safety training a few years ago.  If you visit a Dupont site on a tour and you do not use the handrail on the stairs, they will stop the tour until you do, or ask you to leave.  Makes me want to take the tour, lay my hand on the handrail, fall anyway and then sue them for not specifying how much force I was supposed to grip with.  Mind you, I'm grateful for handrails; I like having a grip nearby in case I stumble.  But, to require that I use it when I'm not needing it?  Cheez, why not require me to use a walker any time I cross the open floor while you're at it?

I'm not so far from being the LOL in the current story.  'Cept, if I slip and fall in your coop and get hurt, I figure it's my own damned fault for not having learned how to fall long before.

Hmm.  How about, LOL goes to the coop and a shelf gives way and heavy wares fall on her?  Bobby built the shelf.  If I were the victim, I'd be terribly disappointed if the coop didn't help with my medical costs, but I wouldn't expect or ask them to take the whole burden; if I were not the victim and the coop didn't help, I'd shop elsewhere.  That's my bias.

The cause of action is tort. Essentially all legal systems recognize the concept of tort. However, this scenario contemplates it arising out of the Anglo-American common law.

Of course the cause of action is a tort.  Prior to post-WW1 America (roughly), there were only intentional torts.  Negligent infliction of an injury causing pecuniary loss was invented by (1) courts of appeals in state's where the legislatures did not enact it and (2) some state legislatures.   That's why the tort doesn't exist without government action because, like corporations, it was created by judges and/or legislators who wanted to make political points with their supporters.  So, I would expect that negligence actions, like corporations, would have been 'deleted' from the 'law' of early settlers.

Speaking of selling bad food, recall how I bought some about a month ago. Bad news, what knocked me flat in minutes could of killed a kid or that LOL.

Resolution, I went back, got an appology and equivalent store credit. Also the knowledge that it was an isolated incident. I am happy and still a customer. No, no, no, I did not want a replacement of the same item.

liability? I know it was not the sort of spoilage caused by bad storage because that manifests as nasty smell, color, taste, ect.  They didn't do it so no liability. Now the meatpacker, yes, probably, but I have no time for it.

Mind you, I'm grateful for handrails; I like having a grip nearby in case I stumble.  But, to require that I use it when I'm not needing it?  Cheez, why not require me to use a walker any time I cross the open floor while you're at it?

Lawyers. The lawyers tell them that they'll be liable unless they do what the lawyers say. They aren't going to pay the lawyers big bucks for expert advice and then not take it. If the time comes that community standards here say that they are liable unless they require you to use a walker, then they will require you to use a walker. The company will blame the lawyers. The lawyers will blame the many thousands of improper lawsuits in which plaintiffs won millions or billions of dollars they should never have been awarded. They point to the statistics that show US businesses lose trillions of dollars a year to stupid lawsuits by people who weren't really injured. They point out that it isn't the fault of lawyers, it's the fault of scammers who do improper lawsuits, and stupid juries who award them big bucks.

Hmm.  How about, LOL goes to the coop and a shelf gives way and heavy wares fall on her?  Bobby built the shelf.

Maybe, Bobby built the shelf 6 years ago, Jimmy way overloaded it 3 years ago, and Cindy overloaded it a little yesterday.

If I were the victim, I'd be terribly disappointed if the coop didn't help with my medical costs, but I wouldn't expect or ask them to take the whole burden; if I were not the victim and the coop didn't help, I'd shop elsewhere.  That's my bias.

Part of the problem is the medical industry. If it costs $2 million to restore a LOL to the full functionality she had before, but 50 years ago the medical people simply couldn't do as much and didn't charge nearly as much for what they could do.... The more they can do, the more that liable defendants are legally required to do for her.

Similarly, if you ding the paint on somebody's car, and some years ago the best the body shop could do was a pretty good job for $150, but now they can do it to the original factory standard for $1500, which treatment are you liable for?

They don't get to lie to me per the poisoned beef example, 'cos that's fraud and all that (I do ask my local farmers how they raise their meat).

Interviewer: So, you have been accused of lying about poisoned beef.

Farmer: That's a goddam lie. I've never poisoned anything and I don't tell any lies.

Interviewer: You didn't tell customers what was in your beef.

Farmer: It was none of their goddam business. They don't need to know all my trade secrets. My beef is completely healthy and they should mind their own business.

Interviewer: But there are scientific studies which show that some treatments do result in beef that makes people sick. And lab tests showed results compatible with you using those treatments.

Farmer: That's junk science! It's the vegetarians, they took over the science in that field and they only let scientists publish things that make beef look bad. It's the vegetarians and the soybean farmers, trying to put the beef industry right out of business.

Interviewer: You disagree with the science.

Farmer: Goddam right. They have all the journals sewed up, any scientist who tries to publish the truth gets shut down. He can't publish unless it's the lies they want.

Interviewer: Well, uh, there were more than a thousand people who got sick....

Farmer: I eat my own beef every day. There's nothing wrong with me. I stand behind my product 100%. I've been selling beef for years and nobody got sick until now.

Interviewer: A lot of people were getting these symptoms for years, but nobody knew why.

Farmer: Well it wasn't me. I think it's moldy rebreathers. People don't clean their rebreathers enough. The sickness this time was partly coincidence and partly the band wagon effect. Also a lot of people who think they can cash in. People heard what it was supposed to feel like, and then they started feeling that way. Those epidemiology guys used completely the wrong methodology. They did it all wrong because they wanted to cause trouble. And look when they published! Just the time it would make the most trouble. We farmers have funded a new study done the right way and when it comes out you'll see that there's no correlation at all.

Interviewer: So, these people who claim you have committed fraud....

Farmer: Completely bogus. I know i did nothing wrong, and I didn't tell any lies about it. I told the complete truth, which is that my beef is 100% fine, I completely stand behind my product, and the rest is nobody's business but my own. That can't be fraud. The problem is all these busybodies who won't mind their own business! All these people coming around asking questions that are none of their goddam business at all. This whole thing oughtn't to be news. It's just a bunch of vegetarians stirring up trouble.

Lawyers.

Yes, I know.

Maybe, Bobby built the shelf 6 years ago, Jimmy way overloaded it 3 years ago, and Cindy overloaded it a little yesterday.

I like it.

Farmer: Completely bogus.

Did I ask him whether it's "poisoned" or did I ask him how he treats his critters, what he feeds them, and whether he uses [stuff in question]?  If I ask directly after the stuff in question and he replies that it's none of my business, I don't buy his beef.

(The guy I actually do buy from does not label his product "organic" even though all his practices are; in our neighborhood, "organic" is a certification that must be bought (from what regulatory agency, I don't know) and he wasn't willing to pay up.)

Farmer: Completely bogus.

Did I ask him whether it's "poisoned" or did I ask him how he treats his critters, what he feeds them, and whether he uses [stuff in question]?  If I ask directly after the stuff in question and he replies that it's none of my business, I don't buy his beef.

So you are not one of his customers. If you get the same symptoms the others get, that's a sign the problem is probably not with his beef.

This is how they decide which item at the church social was contaminated. If 70% of the people who ate one item got sick but 30% of the people who ate another one got sick, that doesn't mean much. But if 40% of the people who didn't eat one item got sick but 3% of the people who say they didn't eat a second one did, that pretty much nails it down.

(The guy I actually do buy from does not label his product "organic" even though all his practices are; in our neighborhood, "organic" is a certification that must be bought (from what regulatory agency, I don't know) and he wasn't willing to pay up.)

Yes, there's a significant expense to proving that you didn't use pesticides for the last X years etc. If your customers will take your word for it without proof, that's cheaper.

Prior to post-WW1 America (roughly), there were only intentional torts.  Negligent infliction of an injury causing pecuniary loss was invented by (1) courts of appeals in state's where the legislatures did not enact it and (2) some state legislatures.   

The concept of legal liability for one's carelessness dates from time immemorial. The roots of modern negligence go back to the England in the1850s. The current statement of the tort of negligence dates from Donoghue v Stevenson in 1932. The common law, by definition, evolves over time.

That's why the tort doesn't exist without government action because, like corporations, it was created by judges and/or legislators who wanted to make political points with their supporters.  So, I would expect that negligence actions, like corporations, would have been 'deleted' from the 'law' of early settlers.

To the extent that the tort of negligence arises out of legislation, you are right. However, to the extent that it arose from dispute resolution under the common law, you are wrong. In theory, dispute resolvers "discover" the common law; they do not create it.

While it is true that courts derive their powers to compel civil compliance, from the government, they are independent of the governments executive and legislative functions. To the extent courts began to realize that carelessness, that results in harm, should be impose a liability on the careless party, is simply an example of how the common law grows, organically. The common law grows and adapts based on real-world realities, not fiat. Any system of dispute resolution--voluntarily or compulsory--could work the same way.

What I have in EFT is a system that uses a variation of the common law and simply adopts the Anglo-American common law as a default setting. (Cases can always be distinguished, if required in equity.) I cannot imagine there being a useful system of dispute resolution that did not include the concept of duty of care and liability for one's negligent acts. YMMV

liability? I know it was not the sort of spoilage caused by bad storage because that manifests as nasty smell, color, taste, ect.  They didn't do it so no liability. Now the meatpacker, yes, probably, but I have no time for it.

FYI, most such cases arise when reefer trucks have their refrigeration off for a while for some reason. Truckers usually "forget" to mention the outage to the consignee.

liability? I know it was not the sort of spoilage caused by bad storage because that manifests as nasty smell, color, taste, ect.  They didn't do it so no liability. Now the meatpacker, yes, probably, but I have no time for it.

FYI, most such cases arise when reefer trucks have their refrigeration off for a while for some reason. Truckers usually "forget" to mention the outage to the consignee.

It can also happen that bacteria grow for a little while in food that then is treated to kill the bacteria. They don't grow enough to give any obvious signs but they make toxins which can make people sick even after the bacteria are dead.

I'd guess that would happen much less often than the trucks because it's in a factory setting where it's much easier to control what happens. Easier to prepare for accidents and such, compared to trucks which are out in the random world.

Maybe once we sort out where the liability is and why, THEN we can go on to solve their problem for them?  I understand the impulse to solve the problem; it was my first reaction, too.  But it isn't the question, and there's really no way even to offer a solution until you've determined liability (or the lack of it). (Emphasis added)

Bravo! Mellyrn gets it. Why is it so difficult for some of you to see the obvious? Read her words again. The scenario is really this simple, "there's really no way even to offer a solution until you've determined liability", duh!

In reality, that is not true. If you can find a resolution that all parties willingly accept, you have a solution. If all parties find the solution acceptable but you have not officially declared who was at fault, that's OK unless somebody insists for their personal satisfaction that you say who was at fault.

In the particular case you describe that looks unlikely. The LOL cannot be made whole, literally, unless she gets more money than the coop has. You'd have to take money from the coop and the richer farmers (and maybe some from the poor farmers too to be fair to the rich farmers) or she does not come out OK. You did not say whether the medical people are willing to heal her and leave her with a crushing debt, or whether they will not heal her without cash on the barrel head, or what. But if she is poor she is clearly in trouble unless the farmers pay.

Take the extreme case -- she dies slowly and miserably unless the farmers pay. Very very unlikely that we get a solution without deciding whether the farmers are at fault. They will not voluntarily agree to pay what she needs, they will only pay it if they have to. She will not agree to die miserably. Liability must be determined.

Take the mild case -- she is a multi-billionaire, she pays for treatment immediately, she wants whoever is responsible to get what's coming to them but after she thinks it over she isn't mad any more and agrees to just let it go, the time she wastes in arbitration to ruin people's lives is not worth it. Maybe she still wants somebody to admit they're liable but she isn't going to punish them, and maybe they don't mind admitting they were liable if they aren't going to be driven bankrupt -- which she could do independent of the legalities.

You are not interested in solving the particular problem but in establishing a precedent. So you probably want the extreme case.

Maybe once we sort out where the liability is and why, THEN we can go on to solve their problem for them?  I understand the impulse to solve the problem; it was my first reaction, too.  But it isn't the question, and there's really no way even to offer a solution until you've determined liability (or the lack of it). (Emphasis added)

Bravo! Mellyrn gets it. Why is it so difficult for some of you to see the obvious? Read her words again. The scenario is really this simple, "there's really no way even to offer a solution until you've determined liability", duh!

In reality, that is not true. If you can find a resolution that all parties willingly accept, you have a solution. If all parties find the solution acceptable but you have not officially declared who was at fault, that's OK unless somebody insists for their personal satisfaction that you say who was at fault.

Which is the case I constructed.

In the particular case you describe that looks unlikely. The LOL cannot be made whole, literally, unless she gets more money than the coop has.

EXACTLY! That is why I created the dilemma. Does equity demand that LOL be made whole at the expense of innocent parties, no matter how bad off this leaves her and no matter how deep are their pockets?

If a drunk driver hits you and paralyzes you for life and in the process crashes and kills himself. Guess what? You are truly and totally fucked. Suing the boss who had just fired him for drinking on the job (this "causing" him to get drunk and drive) only creates an additional victim. There are no guarantees in life of perfect outcomes. Welcome to reality.

Really, this is about theft. These farmers are in the Co-op business to make money. They make money by providing goods at prices people find reasonable. This benefits everyone, including LOL who buys her cat litter there rather than from the door-to-door cat litter man. The Co-op is a buck cheaper, but they limit their liability.

So if the LOL choses to assume the risk to get a buck off at the Co-op and some individual's negligence causes her damage, is it okay to steal someone else's money to make her "whole" (while, by definition, making the richer person who did her no harm, less whole)? Remember, damnum absque injuria.

Take the extreme case -- she dies slowly and miserably unless the farmers pay. Very very unlikely that we get a solution without deciding whether the farmers are at fault. They will not voluntarily agree to pay what she needs, they will only pay it if they have to. She will not agree to die miserably. Liability must be determined.

Duh.

Take the mild case -- she is a multi-billionaire, she pays for treatment immediately, she wants whoever is responsible to get what's coming to them but after she thinks it over she isn't mad any more and agrees to just let it go, the time she wastes in arbitration to ruin people's lives is not worth it. Maybe she still wants somebody to admit they're liable but she isn't going to punish them, and maybe they don't mind admitting they were liable if they aren't going to be driven bankrupt -- which she could do independent of the legalities.

You are not interested in solving the particular problem but in establishing a precedent. So you probably want the extreme case.

If I am poor or if I am rich, I want the vindication of establishing that someone was liable by sticking it to them. You think this is extreme? My friend, it happens all the time, in every sort of situation, in current judicial systems. The most obvious cases are vindictive divorces, where the parties want to punish the other party, no matter what the cost is to themselves. (See, "altruistic punishment,")

LOL's wealth is irrelevant to liability. She and the other parties have agreed to arbitration. After the determination of liability phase of the hearing would come the assessment of damages phase, but these to phases must occur in this logical order.

The scenario is really this simple, "there's really no way even to offer a solution until you've determined liability", duh!

In reality, that is not true. If you can find a resolution that all parties willingly accept, you have a solution. If all parties find the solution acceptable but you have not officially declared who was at fault, that's OK unless somebody insists for their personal satisfaction that you say who was at fault.

Which is the case I constructed.

In the particular case you describe that looks unlikely. The LOL cannot be made whole, literally, unless she gets more money than the coop has.

EXACTLY! That is why I created the dilemma. Does equity demand that LOL be made whole at the expense of innocent parties, no matter how bad off this leaves her and no matter how deep are their pockets?

So you designed a case where the owners are innocent, and the coop looks innocent, and the LOL is innocent, but Bobby is negligent.

And you want us to agree that the innocent owners should not have to pay. I agree with that. I agree with that even without a limited liability sign.

What about the case where the owners are guilty? Should limited liability also get the owners off scot free then?

Really, this is about theft. These farmers are in the Co-op business to make money. They make money by providing goods at prices people find reasonable. This benefits everyone, including LOL who buys her cat litter there rather than from the door-to-door cat litter man. The Co-op is a buck cheaper, but they limit their liability.

And the coop's net worth is $1 million. Add up the savings everybody gets by dealing with them versus dealing with competitors. Does it come to $2 million? It's possible that they have not in fact done more good than harm. But the good is spread out over all their customers, and the harm is just to this one LOL who was going to die soon anyway because she didn't have enough money for rejuvenation treatment.

Maybe they really ought to close down.

So if the LOL choses to assume the risk to get a buck off at the Co-op and some individual's negligence causes her damage, is it okay to steal someone else's money to make her "whole" (while, by definition, making the richer person who did her no harm, less whole)? Remember, damnum absque injuria.

When the farmers are innocent, I think it's not right to take their money. As near as they could tell the coop was being run carefully and correctly by responsible people.

To the extent that the coop was in fact being run carefully and correctly, it's not right to take their money either.

So then there's Bobby. he has $1000 and a strong young body. If the medical industry will pay, say, $2 million for all his fine young organs, he could pay his debt. Would that be appropriate? The death penalty for a simple mistake? It might be. It depends on how the customs go. (Note some of Larry Niven's stories about thumb-runners etc.)

But if employees automatically accept all liability, won't they demand higher wages? I guess they'd want to, but it would depend on supply-and-demand. If your choice is to starve or else take the job with a possible automatic death penalty if you make a small mistake, you take the job.

But wait! How about the store puts up a sign that says they have a maximum $500 limit for any damages paid. Or even $50! Then no matter what happens you can't collect more than $50 from the coop or its employees! Bobby can never have to pay more than $50, and he's home free just like the owners and the coop! Problem solved!

You are not interested in solving the particular problem but in establishing a precedent. So you probably want the extreme case.

If I am poor or if I am rich, I want the vindication of establishing that someone was liable by sticking it to them. You think this is extreme? My friend, it happens all the time, in every sort of situation, in current judicial systems.

It often does, but it does not have to. And when it does not happen then it is possible to reach a settlement without a declaration of liability. In fact, doesn't that often happen IRL? The parties reach a settlement out of court, with no admission of wrong-doing by anybody? Sometimes after a court case has progressed pretty far.

LOL's wealth is irrelevant to liability. She and the other parties have agreed to arbitration. After the determination of liability phase of the hearing would come the assessment of damages phase, but these to phases must occur in this logical order.

If the parties demand that, then that's how it has to be. But in general it does not have to be that way and determination of liability does not have to happen first, and facts of all sorts can be collected in any order.

The scenario is really this simple, "there's really no way even to offer a solution until you've determined liability", duh!

In reality, that is not true. If you can find a resolution that all parties willingly accept, you have a solution. If all parties find the solution acceptable but you have not officially declared who was at fault, that's OK unless somebody insists for their personal satisfaction that you say who was at fault.

Which is the case I constructed.

In the particular case you describe that looks unlikely. The LOL cannot be made whole, literally, unless she gets more money than the coop has.

EXACTLY! That is why I created the dilemma. Does equity demand that LOL be made whole at the expense of innocent parties, no matter how bad off this leaves her and no matter how deep are their pockets?

So you designed a case where the owners are innocent, and the coop looks innocent, and the LOL is innocent, but Bobby is negligent.

Not at all. I was giving you a possible example to explore the question. The case was designed to determine who is or is not liable to LOL. Of course, I have my opinion, based on limited liability by notice. However, if, as some contend, you cannot limit liability by notice, then LOL has more avenues of recourse.

And you want us to agree that the innocent owners should not have to pay. I agree with that. I agree with that even without a limited liability sign.

Cool, but you now have an argument with those who say it takes government action to limit liability.

What about the case where the owners are guilty? Should limited liability also get the owners off scot free then?

Wouldn't that depend on what they were guilty of? If it is decided that you have no liability then you have no liability. "Scott free" implies getting off for something for which you were liable. So you question is insufficiently specific to permit an answer.

And the coop's net worth is $1 million. Add up the savings everybody gets by dealing with them versus dealing with competitors. Does it come to $2 million? It's possible that they have not in fact done more good than harm.

Not relevant in the slightest. I think there is more good than harm, but the criteria for running a business in a market anarchy is not social benefit or utility.

So then there's Bobby. he has $1000 and a strong young body. If the medical industry will pay, say, $2 million for all his fine young organs, he could pay his debt. Would that be appropriate? The death penalty for a simple mistake? It might be. It depends on how the customs go. (Note some of Larry Niven's stories about thumb-runners etc.)

Dandruff. This is an extreme resolution that would never happen and could never be enforced. Killing people who have not violated the ZAP is a violation of the ZAP. Negligence is a tort, not the initiation of force in the ZAP sense. So I guess an arbiter could suggest that Bobby off himself, but it highly unlikely that Bobby would comply. (There are also issues of remoteness, proximate cause, proportionality and probably a lot of others, but in any case, there is no way under the ZAP your "seppuku solution" could be enforced.)

But wait! How about the store puts up a sign that says they have a maximum $500 limit for any damages paid. Or even $50! Then no matter what happens you can't collect more than $50 from the coop or its employees! Bobby can never have to pay more than $50, and he's home free just like the owners and the coop! Problem solved!

Dandruff, but essentially correct. If you can limit liability to the Co-op, you can limited to $50 or zero, if you wish. We are dealing here with a principle, not a price. Now, that does not mean what you think it means and there are not theories of equity, or factual situations, that can limit all liability in all cases. However, I see no reason going there until we have finished dealing with the threshold issue of assessment of liability in this case.

If the parties demand that, then that's how it has to be. But in general it does not have to be that way and determination of liability does not have to happen first, and facts of all sorts can be collected in any order.

Of course facts can be collected first; that's the way it usually works. However, depth of pockets and need are not the relevant facts. However, as to the idea of  assessing damages before liability is still Nonsense, but you go to your church; I will go to mine.