2015
We surge ahead to the modern era. Some will say, none of this applies to me;
it’s all archaic and outmoded: gee, I thought we were smarter than that. Yes, J&L, as well as CF&I, and
countless others are all toast: how can they possibly affect me.
Let’s take a more understandable small business example, a
dentist.
We will conveniently ignore the fact that many modern
dentists are following the path of the small farmer. Small farms are rare today, most farming is
done by large corporations. The farmer
is no longer an independent capitalist, no longer a sole-proprietor, no longer
on duty for 24 x 7; instead, he reports to work like any other employee: as
with other business, the money is spun off through leveraging, and usury. It seems as if a new dental corporation
emerges every day: Gentle, Depot, Aspen, and more. The private dentist will not be able to long
compete with this juggernaut. In spite
of all the facts to the contrary, let’s suppose that dentistry is still a
viable business entity: you graduate, hang out your shingle, and start making
money.
Suppose that you graduated with your DDS last May. After eight grueling years of study, during
which you made no income, you are now saddled with $20,000 in undergraduate
debt, and $300,000 of dental school debt.[i] Your dental school placement offices conduct
demography studies for the broad area, and a promising potential site has been
identified in a small town without local dental services. You assemble and submit your business plans
to banks, building contractors, equipment manufacturers, and a host of
others. You acquire all your local and
state licenses. Much of this preparatory
work was laid out while you were still in school. So, by June you are ready to open your doors
to your first paying customer. You are
also $400,000 deeper in debt;[ii]
that’s $720,00 gross, three quarters of a million dollars. This says nothing of the fact that you also
want to buy a house, marry, and raise a family… another $250,000 conservatively. That’s right, at square one, you’re already
in hock for a cool million bucks in round numbers.
You are organized as a sole-proprietor. You have no employees: you do all your own prophylaxis,
x-ray, and other work. An answering service
handles all phone calls, appointments, and prints out a daily summary to your
email. Dentures, crowns, and other
devices are contracted to a big city lab with overnight delivery.
The question is, who is the real owner? On paper, you, as sole-proprietor, are the
only owner. In fact, your vestiture is
0%, you are leveraged to the roof top and will be for many years. Who is the real capitalist? In theory, you are. In reality: the bank owns the building; the
manufacturer owns the specialized equipment, which is, in turn, leveraged to
another bank; your house and car are mortgaged.
The bank(s) is/are the true capitalist/owner/proprie-tor(s). The specialized equipment manufacturer is an
intermediate capitalist/owner/proprietor.
The only thing you have capital ownership over is a mountain of debt.
Business goes well for several years. The bank takes its cut off the top: most of
the earnings go to service interest or usury.
Your vestiture grows only very slowly.
The specialized equipment manufacturer takes its cut next. You are saddled with maintenance, repair, and
other operational costs, which easily run 10% of the gross capital value every
year.[iii] Dentistry is a rapidly growing technological
field, so you must also bear the cost of new equipment or leverage these as
well. After a decade, you might find
yourself vested at 10%... at last, you have become a capital owner. On the other hand, you are still the enslaved
employee of the bank and specialized equipment manufacturer. The government and insurance companies tell
you what services you may perform, what you may charge for them, and pretty
much every other aspect of doing business: but, you are a capitalist, an owner,
a sole-proprietor of 10% of pretty much nothing… all the hard decisions are
made for you by others… you get to lock and unlock the doors, and pay the
bills. The teeter won’t begin to totter until
you pass the half way point. Firm ground
will not be attained until you reach 100% and eliminate all leverage.
The demographics of your business is sustained by a small
manufacturing plant that employs 200 people.
These, in turn, spend enough money in town to sustain 200 other people’s
jobs (including yours); together they support the town budget over and above
what the local farm and ranch business supplies. These are your customers. This is the whole basis of your success as a
dentist. After a decade, the manufacturing
plant can no longer compete, lays off all its employees, and locks its
doors. All your customers, 400 of them,
are now out of work; moving away as fast as they can find new jobs: and you are
out of business as well.
Who takes all the risk?
Does the bank have any risk? Not
really. They might have made slightly
more money had the mortgages played out their full time limit: but the interest
fees collected up-front covered their capital investment a long time ago; they’ve
been making gravy ever since; so the bank has no true risk at this level. Does the specialized equipment manufacturer have
any risk? Not really. They took a minor hit; but, they scooped up
all the equipment; resold it to other dentists; and with sales and other fees,
pocketed a tidy profit at your expense.
The building went back to the bank, with little risk, and was soon
leased to another venture. Who took all
the risk? You did. All those leveraged debts are in your name,
and baring bankruptcy, you are obliged to pay them off: so, you must start
over. At best, you recoup a few thousand
bucks of equity; really nothing compared to the mountains of debt you still
own.
Who is the real capitalist?
The bank is. Any idea of your own
capitalism is delusional. The risk to
the bank, which is sheltered by up-front interest or usury fees, is nil. The chance that the bank won’t pick up all
the chips, and spin them off in new loans is zero. The bank will make the same amount of money
in the long haul; just from another customer; they experienced a minor bump in
the road.
Who are the real owners?
The real estate firm and the specialized equipment manufacturer are. Any concept of personal ownership is a form
of psychological denial. The risks to
the real estate firm and the specialized equipment manufacturer are nonexistent. All the hard assets are recovered in days,
and put back into play: it was a bump in the road. You get to keep your shirt, your diploma, and
your debts.
Capitalism or ownership as we think of it, together with its
concomitant risks, simply does not exist in a leveraged society. There is no more risk to the bank, the true
capitalist-owner, than there is to the local casino; one person’s luck is soon offset
by the losses of another; there is no risk to the casino: for, 10% is taken off
the top of every bet. The only true risk
falls on the back of the player, the employee, the hard-working poor person...
in this case, you, a young dentist, fresh out of dental school.
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