anonymous mouse Bazhenova

During the Adam Smith Readings, I was live-tweeting individual theses of the presentations, and I specifically noted the report by Artem Seversky, which was dedicated to the phenomenon of bankruptcy from the perspective of economics and normative philosophy. Artem was also kind enough to publish a text version of his report on Liter (I have advertised it before; it is a blog dedicated to libertarian theory under the auspices of the LPR—the one of the two LPRs that includes Fedyukin, Bazhenov, and, in fact, Seversky).

In short, the report boils down to the following. Bankruptcy is a situation of simultaneous claims of legitimate entitlements to a single mass of assets that is insufficient to satisfy them. Such a situation can arise even if all the transactions that led to it were voluntary and libertarian principles were not violated—and yet, there is legal uncertainty: it is impossible to satisfy all claims simultaneously, which means a certain procedure for their satisfaction must be developed.

Next, Artem points out that for the procedure of satisfying such claims to not violate libertarian principles itself, it must follow certain rules. One must account for the possibility that different claims may have different priorities because they arose from different legal relationships. It is one thing to have an obligation to pay wages or pay for the delivery of equipment, and another to settle with an investor. It will also be necessary to reconcile the different time preferences of creditors: some are willing to accept installment payments if they can get more, while others are eager to recover the debt as quickly as possible. In effect, for libertarians, this means the necessity of recognizing common property, however much they may wish to reduce everything to private property alone. Finally, it should be considered that legitimate claims to the debtor’s property are held not only by those who have already demanded payment, but also by those who have not yet done so—however, if the bankruptcy procedure affects their interests as well, it will also draw them into the general conflict. For example, if a house is seized for an unpaid business development loan, the interests of not only the debtor but also his household members will suffer, and they will have legitimate claims against the creditors. In other words, Artem argues that to develop a bankruptcy procedure, libertarians will inevitably have to arrive at the concept of legal entities, however much they may want to reduce everything to personal responsibility without unnecessary red tape.

So how will bankruptcies work under ancap? Naturally, by using all the theoretical developments created back during estatism, but filtering out at least those norms that imply state intervention. Bankruptcy law currently differs from state to state; similarly, under ancap, it will differ across various societies—some nuances will be in use in some places, others in others, while maintaining certain general framework principles. If the counterparties have not agreed in advance on which norms to apply, they will have to improvise, which will likely mean that in settling the conflict, the court will first need to determine which specific bankruptcy law would be most comfortable for all participants in the process, as well as for the judge’s notions of justice.

Of course, under ancap, some communities may retain norms that violate libertarian principles. For example, in the village of Tatarkovo, it might be accepted that a debtor is liable for a debt, no matter what it is, with all their property and even their own body as part of that property. This circumstance will simply have to be kept in mind by potential counterparties of the residents of Tatarkovo village. We can only assume that as greater trust is established in society and as time preferences decrease, business practices—including in conflict situations such as bankruptcies—will evolve toward greater leniency, at least toward honest entrepreneurs who misjudged the risks.