The argument is that limited liability is something which can only come from a government and not a free market—not companies in general. To a small degree this is probably true, but you can get very close through ordinary contracts. For the most part limited liability only shields you when it comes to your creditors and ordinary business dealings; if you harm someone deliberately, or through negligence, your status as an agent of a limited liability corporation will not prevent you from being found personally liable. And it's not difficult to specify in a contract that any compensation for breach of contract is limited to the assets of the company and not its owners, so that much does not require any government intervention. That leaves a "grey area" limited to accidental harm not involving negligence where the corporation lacks sufficient resources to cover the liability—which is a tiny minority of all cases where corporations probably receive more protection than the corresponding organizations would in a free market, and really not something worth obsessing over.
This may be correct only in the sense that, without a government, there would be zero liability (instead of limited liability) for big companies. After all who could go against, for example, Microsoft if it decided to screw their customers and suppliers?
Even the largest companies are dependent on maintaining their reputations as organizations which uphold their ends of any agreements. A company which no one will contract with might as well not exist. They're not going to just turn outlaw and repudiate their liability as determined by a fair arbitration process; that would be tantamount to corporate suicide.
This is a very simplistic explanation of limited liability, and absolute does not cover all situation for which government shields companies from liability.
For example EPA, and other government agencies have all kinds of regulations that cap, or other shield companies from liabilities preventing ordinary citizens from seeking compensation from the corporations that harmed them.
There is also the endless amount of regulations the protect businesses from consumer backlash which is also a form of liability shield. This is why businesses wanted the government to step in an mandated masks, vaccinations, etc so they would not have make the hard choices for their own business they can stand back and say "it is not us, it is the government making us"
Of course these are just 2 examples there are many many many others
I agree that the government does various other things to shield specific companies from liability in specific circumstances, but these are not inherent in the concept of a limited liability corporation under discussion.
Given that I started this discussion I think I have a understanding of what is under discussion.
The main thesis that was/is being debated is one on corruption and the feedback loop between government and corporations. For which I contend that governments created corporations to shield these entities from liability.
you described one type of liability which excluded other types, I maintain that my original comment has a greater scope
> For which I contend that governments created corporations to shield these entities from liability.
The concept of limited liability for corporations, equitable trusts, and the like predates its official recognition in law. For a long time it was simply taken for granted that creditors could not pursue a business organization's debts against its individual members. The term "corporation" may have been a government invention—originally associated with de jure monopolies—but government did not create the idea of an organization with limited liability. It did extend the concept slightly to include protection against liability for certain kinds of torts, which I agree is not something that could exist in a free market. And of course the idea of a corporation in the original sense, as an organization granted a monopoly on a certain kind of trade, is incompatible with the free market. But the idea that large companies with limited liability (only for contracts, not torts) could not exist in a free market is nonsense. And when it comes to torts, liability ought to rest with the individual(s) whose action or negligence caused the harm, not the shareholders, which makes the lack of limited liability for torts for the owners of a large joint stock company less of a concern; they're not the ones responsible for the harm to begin with.
