As we consider these wrong turns away from the good life, we will sometimes see Big Business lurking in the background. Many of the innovations, if not specifically engineered by industrialists, turn out to be of great benefit for anyone who is in the process of building a manufacturing empire.
But what led to the existence of Big Business in the first place, at least as we know it today? Industrialists have been around for hundreds of years, but their influence was isolated and limited. Even when British peasants were forced off the land and into wage labor in the sixteenth and seventeenth centuries, most of them ended up as day laborers and servants, not employed by large business concerns—because with very few exceptions large business concerns did not exist.
The most important limitation on the size of a business was liability. When a man joined with partners to create a business larger than he could fund and operate on his own, he was still personally liable (along with his partners) for any damage done by the business. As a result, men were reluctant to embark on a project where someone else’s mistake might cost one not only their investment in the business but their personal fortune as well. Most partnerships involved people with strong family ties.
Occasionally a government would decide that a large-scale venture, such as a trading company or a railroad, was so important that it was willing to exempt the participants from being personally liable. A joint stock company would be formed, and the government would grant it a charter of incorporation, meaning that the company would be treated as a fictitious person, itself liable for any damage done by its employees. Thus, each of the many shareholders risked only the money they contributed to the business.
Until recently corporate charters were unusual arrangements, made in response to unusual circumstances. It often took years of effort for supporters to persuade the government to grant one, and it was common for such a charter to be revoked when the political winds shifted. But in the mid-nineteenth century there was a worldwide shift in practice, and it suddenly became possible to incorporate a business—and exempt oneself from personal liability—for any reason at all. And as soon as investors knew that they were no longer personally at risk for the bad behavior of a company they owned, they quickly pooled their funds and formed companies far larger than would have been feasible for an individual or group of partners to fund.
Meanwhile, the newly formed companies began to operate with a ruthless freedom unknown to that point, knowing that the only thing that was ultimately at risk was its capital. Businesses that did not incorporate were put at a distinct disadvantage, and so by the end of the twentieth century incorporation became the norm even for the smallest of businesses—not so that stockholder capital could be pooled, but to avoid personal liability.
Not much has been written about this, but there is one very good book on the subject, The Company: A Short History of a Revolutionary Idea by John Micklethwait and Adrian Wooldridge. There is also a good explanation in The Real Lincoln by Thomas DiLorenzo of how in nineteenth century America railroad companies changed both the way business was done and the way government treated Big Business.
Eagerness to evade liability eventually worked its way into people’s everyday sensibility, with the encouragement of big business. In days past people generally assumed responsibility for meeting their own needs and paying for their own mistakes. If a person was unable to do that, it fell to the community to take up the slack. The community decided whether to help and how much help to provide based on its intimate knowledge of the situation. This by itself was enough to limit the risks an individual would take.
Numerous changes in the twentieth century shifted the burden of risk from the individual to either the injured party, insurance companies, or the state. Incorporation, personal bankruptcy laws, the high cost of litigation, the impersonal nature of financial arrangements, and the weakening community and family bonds all worked to protect a person from having to make restitution to a victim of his mistakes. Insurance of all sorts encouraged people to take risks which they might have avoided if they had to bear the cost of their mistakes directly. Social safety nets assured people a minimal government-funded existence no matter how irresponsibly they managed their affairs. Encouraging and enabling people to disregard the consequences of their actions has not only become common, it has become an important part of the modern industrial economy.
Assuming personal responsibility for the consequences of our actions is maybe the most straightforward move we can make to break step with modern society, but it is also the scariest. If we forego the limitations on liability that society offers, what will protect us from catastrophic loss?
At the risk of sounding pious and naive, I’d like to suggest that such protection can be found in righteous living. There will still be dangers that will leave us open to being injured by wicked people, but in the end society is also unable to provide any protection from wickedness. Here are a few suggestions on how to both be responsible and avoid unnecessary risk.
Deal righteously with people. So says the Golden Rule (Matthew 7:12, Luke 6:31).
Deal with righteous people. As far as possible, seek out people who share your understanding of right and wrong, fair and unfair, and restrict your dealings to them. If it costs more to get something done, there may be a good reason for that. If you are unable to find such a person to do the thing you want done, there may be a good reason for that as well. Assure these people that if unforeseen circumstances arise, you will do your best to make things right; get an assurance that they will do the same.
Deal with fewer people. Righteous people are in short supply, and it takes time and effort to determine that you are dealing with one. We need to accept this fact as placing a good and natural limit on the sort of things we can and can’t do.
We tend to think that we are entitled to operate on as wide a scale as we would like, and that engaging questionable people to get things done is just a necessary evil. Instead we need to seriously consider adjusting the scale of our operation to the resources that are available to us. It’s true that a wage laborer is much less likely to have our interests at heart than we or a family member would, and so hiring a wage laborer opens us up to significant risks. Rather than hiring unreliable people and then limiting our responsibility for the damage they might do, we should limit ourselves to doing only those things that we can accomplish with the help of reliable people.
Don’t burden others unnecessarily. The twentieth century saw a rapid erosion in our sense of personal responsibility. At the turn of the century we shouldered our burdens ourselves with the occasional help of our communities, in part because there was no other option. By the end of the century there was no burden too small for us to demand the help of society at large in dealing with it, no offense too slight for us to demand compensation. Whole sections of the economy—medicine, insurance, schools, colleges, law firms—thrive because of our insistence that there be no limits on our access to these resources, even if other people must foot the bill.
We need to rid ourselves of the idea that we are entitled to things we have not produced ourselves and cannot afford. The quickest way to stop looking to others to meet our needs and begin to meet them ourselves. Government services, insurance policies, employer benefits, and consumer debt all need to be viewed skeptically.
e cost. The fact that we can afford a thing doesn’t mean that it is worth the price. For example, families are incurring hundreds of thousands of dollars of debt to give their children college training that cannot possibly justify the expense. Wedding ceremonies routinely cost tens of thousands of dollars. Vacations need only days to burn through funds that took months or years to accumulate. At the same time, our children are expected to “make their own way,” limiting themselves to careers that require no initial assets because we have none to give them.
We need to see our own assets as a legacy, not to be squandered frivolously but to be guarded and grown with the intent of passing them on to the next generation. This will not only assure an inheritance for our children, it will limit our scope of operations in healthy ways.