Tuesday, September 22, 2009

Interesting article; Subsidies for Corporations in the 1850s and 60s.

I just read a fascinating historical article by Martin Horwitz, called "The Transformation of American Law: 1760-1860"

Basically, he traces the rise of negligence liability as opposed to strict liability, and how negligence eventually overcame strict liability in that period.

Negligence theory operates on the assumption that we should only have to pay someone if we harm them culpably, that is, if we should have been acting differently than we did. There was some early basis for this, but it was only grounded in legal duties (contracts, or the role of various statesmen) that we failed to perform. The modern definition (act like a reasonable person would in the cirucmstances) hadn't yet come.

More dominant early one was strict liability. We still have this today (although it all but disappeared in the period in question). With strict liability we say, okay, even if you weren't negligent, you still caused this injury. You chose to act, and you derive the benefit from your actions. You have to pay the costs (of hurting others), even if you acted responsibly. The idea is that you don't get to externalize (i.e. make others pay for) the costs of your own activities. Fair enough.

As this period came to a close, negligence began to dominate all areas of liability. This brough with it a huge social change and an enormous hidden subsidy. Corporations could do whatever they wanted (as long as it wasn't negligent) and injury the people and property around them, and they didn't have to pay. They were able to externalize the risks of their activity to the weakest. It became a matter of the the "inactive" those who weren't engaged in activities that injured others) having to pay for the "active" (the corporations), more than a proportionate share (they weren't just buying their goods; they were taking it on the chin most every time they were injured by the production or product from a corporation).

What does all this amount to? A huge legal subsidy for corporations in the antebellum period; a massive regressive redistribution of wealth. It doesn't just have to come through taxes!

I'm a nerd and thought that was interesting. Maybe I'll write about retributive and utilitarian theories of punishment next...

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