Imagine that a wealthy person starts a restaurant. He creates an LLC with the state, he finds an appropriate piece of land, he gets a loan from the bank into the LLC, he buys the land, and a new restaurant building rises on the site. We call this person “the owner” of the new restaurant.
To staff his restaurant, the owner hires employees: a cook, a bus boy, a dish washer, some waitresses, and a manager to run the restaurant. People need jobs, so the workers all get paid minimum wage or very close, and their hours are constrained so they receive no benefits. This kind of arrangement is completely normal in the United States today.
On any given day the restaurant makes $X. The restaurant manager pays all of the workers a total of $Y. The restaurant also has other expenses (like raw ingredients and supplies, electricity, advertising, insurance and the monthly loan payment to the bank) which the manager pays, totaling $Z. The profit is $P, so:
$P = $X – $Y – $Z
The owner gets all of $P, essentially for eternity, as long as the restaurant stays in business.
This is Capitalism 101, and it seems simple enough. In fact it seems completely normal if you live in a capitalistic economy. These principles have been drilled into your head since kindergarten.
But have you ever though about this system and what it means?
The first question to ask is, Why does the owner deserve anything? He is not actually doing any work here after getting the loan and starting the restaurant. He did not build the building – contractors and subcontractors did that. He did not make any of the equipment or furniture in the restaurant. He is not doing any of the work needed to run the restaurant – the manager and employees do all of that. Yes, he did go to the bank and get the loan, but that was a few days of work. Now the owner gets to make $P every day for eternity for doing nothing. Why?
Does this seem reasonable? This scenario is completely normal in capitalism and happens across millions of companies every day, but is it reasonable? Should someone be paid for doing, essentially, nothing?
Some might say that the owner is taking a risk, and deserves a reward. But what actual risk is the owner taking? Let’s say that there is no profit one month, or there is a shortfall. The owner might miss a loan payment. Or he might fire a waitress and make the other waitresses work more. Or the owner might get another loan and pay some interest on it to cover the shortfall. The worst case scenario is that the restaurant goes out of business and the bank forecloses on the building. This doesn’t really matter to the owner, because the LLC has shielded the owner from all personal liability. The owner might lose a little money, but as a wealthy person, the amount is trivial in the grand scheme of things.
To put it another way, no “normal person” can open a restaurant as described here. The only way it would be possible would be through a loan. And the bank’s risk is minimized because, in the foreclosure process, the bank takes possession of all of the restaurant’s assets.
So if we think about this rationally, the owner does not deserve to receive $P every day. Does he deserve something? Yes. Like the waitresses and the cook, he should be paid for the work he contributes. But since he is not contributing any work on a day-to-day basis (the manager and other employees do all of the work), the owner deserves $0 on a day-to-day basis. We could pay him for the small amount of time he contributed in setting up the restaurant at the beginning with a small one-time payment. However, it is obvious that the owner’s tiny effort is certainly not worth $P every day for eternity.
So why does the owner get $P every day? It is simply a fact that “the rules of capitalism” give all the profit to the owner, whether those rules make any sense or not, and whether they are good for society or not.
What could be done with $P? There are three good ways this money could be used:
- The $P could be split amongst the workers – the people who are actually working and keeping the restaurant operational – so they receive a reasonable wage rather than minimum wage.
- The $P could be given back to the customers, since the customers are paying more than they should for the product/service that they are receiving.
- Some combination of #1 and #2.
This would be fair and reasonable, but capitalism is not wired to be fair or reasonable.
How Asset Capture Works
There is something else happening here that is remarkably unfair. The price charged to the customers for their meals includes the money being used to pay down the loan on the land and the building. Once the loan is paid off, the owner owns the land and building free and clear, and these two things are gigantically valuable.
But why does the owner get to own these valuable assets? The money was taken from customers by overcharging them for the product/service they received. Yet the owner keeps all of that money taken from customers because he now owns the land and building free and clear.
The steps to this asset theft go like this:
- The owner gets a loan to build the restaurant building and fill it with equipment and furniture.
- With the loan, the owner buys a piece of land and builds the restaurant building.
- Each month, the owner makes a loan payment. The money for this loan payment comes by increasing the prices on the food served in the restaurant. In other words, the money for each loan payment comes from the customers.
- Eventually the loan is paid off.
- The restaurant owner now owns the land and the building free and clear. He never paid a dime for it. All of the money came from the customers.
This asset value that the owner keeps is above and beyond all of the profit the owner collected for dong zero work.
It would be just as easy to write the rules so that the restaurant’s customers, collectively, own the building at the end of the process, in proportion to their contribution. A customer who came to the restaurant one time would own a tiny slice of the building, while a customer who ate lunch at the restaurant every day would own more. These customers, after all, contributed all of the money to pay off the loan. To give the entire building to the owner, who contributed nothing, is absurd.
Simply ask yourself: Why don’t the customers, collectively, own the building in proportion to the money they spent when they visited the restaurant? This would be the just, fair way for the economy to handle the building’s ownership. The customers, after all, are the ones who paid off the loan through higher prices charged by the restaurant. If capitalism were working rationally, this is how capitalism would work. Instead, the owner now owns everything, having contributed nothing to the operation of the restaurant. The restaurant employees did all the work. The restaurant manager managed the employees and handled all of the administrative tasks. A contractor and his sub-contractors built the building. The owner has done no work day-to-day. In addition, the owner already receives all of $P. To also give the entire building to the owner is absurd.
The theft that is occurring here is obvious. The owner should not own the building once the loan is paid off. The customers who contributed the money through higher prices should own the building. Yet capitalism does not work like this at all, because capitalism is absurd.
The Forcing Function in Capitalism
If you take this simple observation and expand it, you can learn about many of the inequities and perversions in the capitalistic system. It really is remarkable to see how unjust capitalism can be.
For example, why are the employees all paid minimum wage (or nearly so) in this example, and at just about every restaurant across the United States? Because in capitalism, there is a forcing function that forces employees to work for low wages. Here is how the forcing function works:
- Step 1 – in order to live in a capitalistic society, each adult must have money to pay for his/her natural human needs: food, housing, health care, etc.
- Step 2 – there are only so many jobs in the economy. Those workers who remain after all of the jobs are filled are called “the unemployed”. If the unemployed people in the economy do not get a job soon, or sponge off someone else, the unemployed burn through any savings they have and will become homeless.
- Step 3 – If a person’s only choice is to work for minimum wage or become homeless, the person is forced to work for minimum wage.
Millions of adults in every capitalistic economy are therefore forced to work for minimum wage. This is the forcing function of capitalism at work. People are threatened with homelessness and physical suffering if they do not comply with the absurd rules imposed by capitalism.
Someone (usually a wealthy person) might say, “go get training and you can get yourself a job better than minimum wage.” The problem is that the forcing function still applies, so that statement is not true for many people in the economy:
- If A is the total number of adults in the economy who need jobs in order to pay for their basic human needs…
- and B is the number of good jobs (paying $52,000 or more, as described in Chapter 5)…
- and C is the number of bad jobs (jobs that pay less than $52,000 per year)…
- then A – B – C = D.
D is the number of adults who cannot get jobs, and D is huge in the United States right now. C is also much larger than B, so most working adults in the economy who are working have bad jobs compared to adults with good jobs. [ref]. Therefore, by definition, more than half of the people in America (C) are forced into crappy low-paying jobs. These workers have no choice, no matter how much training they have, because there are only so many good jobs to go around, and the number is small. The only alternative to working in these low-paying jobs is homelessness.
There is a very interesting psychological quirk at work here. It involves a natural human desire for “choice”. If you tell a person that they have to work for McDonald’s for minimum wage, there would be rebellion and anger. But if you create a system where the “choice” is “work for McDonald’s in some low paying job or become homeless”, people will force themselves to do it because working at McDonald’s in a crappy job is better than homelessness and starvation.
With enough propaganda pumped out by the media (which is owned by the wealthy), tens of millions of poor people will actually feel guilty about their situation. They will feel like they are inadequate, incompetent, cursed, etc. They have been conditioned to believe that capitalism is “good” through immense amounts of propaganda. The propaganda has convinced them that they are themselves to blame for their poverty. The reality of the situation, however, is far different. They have no reason to feel guilty. They should instead be rebelling against capitalism, which is forcing poverty on them despite their contributions to the economy.
Meanwhile, the wealthy owner has used the rules of capitalism to get another loan and build a second restaurant, and a third… And pretty soon the owner owns many restaurants and has thousands of employees. This progression has happened many times in America.
At a corporate level like McDonald’s, the perverse nature of capitalism reaches full bloom. The CEO of McDonalds makes almost $8 million a year [ref] along with “use of the company’s corporate aircraft, an allowance for a company car, free financial planning services and other unspecified personal items totaling $224,235.” Innumerable other “executives” are draining millions more from the company, and all of this largess is funded by consumers.
Then McDonald’s pays billions of dollars per year as a dividend to shareholders – money stolen out of the pockets of consumers and pushed into the pockets of the elites for no reason other than to enrich shareholders. Consumers who fund the dividend receive nothing in return for the dividend, and the people receiving the dividend did no work to receive it. The dividend is theft, plain and simple, supported by the current rules of capitalism, which are drawn up by the elites for their own benefit.
And in addition, the owners pay off their loans and own all of the assets that the customer’s actually paid for, as described above.
As you can see, the rules of the capitalistic economy are absurd for the majority of people participating in the economy. The wealthy elite benefit of course, because they are extracting trillions of dollars from the economy through these warped rules of capitalism. Since the wealthy elite control all of the power, all of the government, and all of the media, they can pump out plenty of propaganda to calm the masses down and obscure/hide/justify all of the theft that is taking place.
The new economic system that we design must eliminate all of this theft, all of the asset capture, all of the profit taking, all of the dividends, etc. that fuels the immense concentration of wealth in capitalism. This will in turn eliminate the wealthy elite.