Chapter Ten Corporations
Some people here in Pastland have ideas for projects that can bring immense benefits to the human race, but which are so large the people will need some sort of long-term organized structure to make them work. For example, we have only a small amount of electricity. Now that people are building mansions, we need more. One of our people knows how to make a machine called a ‘crystallizing furnace,’ which turns ordinary sand (silicon dioxide) into crystalline silicon that can be easily turned into photoelectric generating solar panels. The furnace is large and expensive and will require many years to build. Investors might be wiling to fund it, but they are worried that if they invest in a project that only one person knows how to do, and this one person dies or gets bored, they can lose their money. They will invest if the person forms an organization with stated, written goals and several layers of management that are able to make sure that all personnel could be replaced and the project completed, regardless of what happened.
They may agree to invest if the person who wants to build the furnace writes up a plan that can be followed even if he should die; he then hires officers who will hire and supervise workers to carry out the plan. (He can be one of these officers, perhaps the main one, as long as there is a plan in place to replace him if something happens to him.) He will then have to make sure that the officers could be replaced if something happens to them. He can do this by creating a ‘board of directors’ to stand over the entire project and deal with any problems. If he does this, the investors are willing to put up the money. They must have the authority to fire and replace the directors if they aren’t doing the jobs, and the directors must have the authority to fire the officers if the directors think the officers aren’t doing their jobs.
This kind of organization is called a ‘corporation.’ Many people here in Pastland want to do things that will take a long time to finish. Investors won’t provide the money unless they know the project will continue regardless of what happens to the individuals. This is what the structure that we call a ‘corporation’ does in our 21st century world. If we want such projects to take place, we don’t have to reinvent this structure. It already exists and we already understand it. We can just adapt it for our needs and make sure that corporations benefit us, the members of the human race, by only selling rights to corporations when we benefit from this, and selling them in ways that bring maximum benefits to us, the members of the human race.
Two things that are Almost the same: Real Estate and ‘Mature Corporations’
Frances says that corporations, once created and operated to stability, are almost identical to farms in certain important respects. Farms may be ‘bountiful.’ They can produce rivers of free value that can be represented by rivers of free cash, or free cash flows. So can corporations.
In fact, corporations have far greater potential to generate rivers of free money (free cash flows) than land because corporations can produce an infinite variety of things that bring benefits to the human race.
Consider that one corporation—a very mature and seasoned corporation—by itself, generated more than $93 billion ($93,000,000,000) in free cash flows in 2020 alone. You can see that there is truly great potential to benefit from the operation of corporations.
If socratic leasehold ownership was common in our world, we might use this system for mature corporations (corporations that already exist, are already generating cash flows, and are basically the same, for the buyers of these assets, as any other cash flow-generating asset).
For example, people who want to form corporations can do so under the same basic terms as in our 21st century world. (The exception of taxes; our 21st century societies absolutely need taxes and corporations pay a lot; in the socratic society, taxes are unnecessary and, to encourage corporate progress, corporations and corporate owners can be guaranteed freedom from taxes.) After a certain amount of time, say 15 years, the corporate charter for the ‘freehold’ corporation expires and converts to a new corporate charter that only allows people to buy and own leasehold rights to the company.
Let’s consider the above corporation, Apple. Apple converts ordinary sand into electronic devices of incredible capabilities. Obviously, the company doesn’t have to pay much of anything for its inputs and gets incredible sums of money for the outputs. The difference between the cost of all inputs (including management, organizational costs, and administrative costs) is the free cash flow of the company. The company generates a truly fantastic, mind boggling, free cash flow.
People buying into Apple in 2020 are not going to have to figure out how to turn the sand into the chips, arrange the chips into computers (including iPhones, which are actually very powerful computers) and then figure out how to design the input devices (the touch screen, for example, the gyroscopes that detect movement, the GPS receiver that tells the phone where it is, the cameras that determine what is around the phone), and figure out how to build the software that puts all this together. The people who formed this company and put it together in the 1970s and 1980s already figured all these things out. They put together a massive cash flow-generating machine. People buying into the company now are simply buying a cash flow, in the same way that people buying in to Texas rice farms are simply buying cash flows.
Another example may make this clearer. In 1874, Andrew Carnegie heard of a company that was making steel using a new method to make steel. The Thompson Steel Works used a process called ‘The Bessemer Process’ to add the carbon to the iron. Old steel mills did this by a very expensive, labor-intensive method, literally pounding carbon into the iron with hammers. The new process was thousands of times faster and much, much cheaper. Carnegie bought the mill and the patent on the process. He expanded the process and the Thompson Steel Works began making truly fantastic free cash flows. He expanded to build more mills that used the new system. By 1901 he was one of the richest people on the planet. That year, he sold his collection of mills, (called the Carnegie Steel Corporation) to become the foundation of a global network of steel mills, using the same process. He got $480 million for the company, adding a great deal to his incredible wealth.
The mill that Carnegie first bought in 1874, and most of the other mills he built to test and perfect his new process, are still in operation to this day. They still generate incredible free cash flows, with the company that holds them, US Steel (formerly the Carnegie Steel Corporation), generating about $1 billion a year in free cash flows.
None of the people involved with building the process are alive anymore. None of the people involved with building the mills are alive today. It is clearly not possible for the people responsible for the cash flows to get this money: dead people have no use for money. Some other people must get this free money.
Who gets it?
In freehold systems, the right to get all free cash flows is offered for sale. The free money goes to whoever is willing to pay the most for it. If you want a share of these free cash flows, you can call any broker and say you want to buy a share in the US Steel corporation. You are buying the right to get a share of any free money the company produces. You aren’t getting the free additional money because you are doing anything to benefit the human race. You are getting free money because you live in a system that is designed so that the free wealth or bounty of this bountiful world flows to a tiny, tiny percentage of the population. Only rich people have enough money to spend their money buying free cash flows (buying cash flow-generating assets like farms and corporations).
Many estimate that only about 1% of the world’s people are in this category. These people start out rich and get richer.
Corporations are legal entities with legal rights that are protected by courts. They would not be able to raise money or do business if they did not have these rights, and they therefore wouldn’t be able to exist without these rights. The system in Pastland has no countries. We consciously decided not to form them. We decided that the people of the planet Earth would make key decisions involving what happened on our world. We are in charge. If we want corporations, we can have them. If we want to make rules that involve ownership of corporations, we can make these rules. If the people who are thinking about forming the corporations don’t like our rules, they will choose not to form corporations. That is their only option; they can’t simply go to another country (as people forming corporations in the 21st century can do) and bribe the government officials (or lobby them, in places where bribery is called lobbying) to allow them to make their own rules.
In Pastland, we can decide to allow corporations to exist or decide to not let them exist. I want to show you that we, the people of the planet Earth, gain truly incredible benefits if we allow corporations to exist and make a rule that specifies that control over the corporations will convert to socratic leasehold ownership after a length of time. We will gain two benefits from this. The first involves the creation of products that simply can’t be created and wouldn’t otherwise exist if not for corporations. This includes high-quality and inexpensive steel, and all the things that simply couldn’t exist without high-quality inexpensive steel, from skyscrapers to bridges, to cars. It includes electricity and everything that runs off of electricity, from cell phones to refrigerators to television sets. It includes the machines that harvest our food in a fraction of the time humans would take, leading to high-quality diets, and medical devices that save millions of lives a year. Our world would simply not be able to support anything near the 8 billion people it supports without corporations and, whatever number of people it could support would not have anything close to the standard of living that we take for granted in our world today.
Let’s consider how and why people might form corporations in Pastland, and how we might set up a system so that every person on Earth benefits every day in two critical ways from the existence of corporations.
Leasehold Ownership Of Corporations In Pastland
People are building a lot of homes in Pastland. These people want certain tools and building materials that could be made much more cheaply in enormous plants and factories. Many people would like to build these factories, but they can’t afford to build them with their own money. They need to share the risks and costs in an organized way that will allow the people who invest to make money over a long period of time, allowing them to recover their investment and make a profit. They need some organization that will allow them to do this.
The organization that they use must be accepted by the people around them and have the ability to make contracts and deals that are enforceable in courts. Our group in Pastland hasn’t yet built any structures like this so they can’t do these things. As a result, they can’t build many things they want to build. One thing that people would really, really like to have is nails. It is possible to make nails in small workshops, the kind that ordinary people can afford to build, but this requires immense amounts of labor and is incredibly destructive. If we don’t have corporations (or any similar organizations) people will be able to make nails, but they won’t make very many of them and those they make will be incredibly expensive.
Nails In Societies Without Corporations
You could make a few nails a month in your backyard if you had a few dozen people to help you. Here is how you would do it:
First, you need to make several thousand pounds of charcoal. You will need charcoal because regular wood and regular coal don’t burn hot enough to ‘smelt’ iron out of rocks. Charcoal is basically pure carbon fuel and burns far hotter than wood, natural gas, natural coal, or anything else that is available to make fires. It is the only natural fuel that burns hot enough to smelt iron. To make the charcoal, you need to cut immense amounts of wood and build it into a huge pile, with a kind of room in the middle and an opening that allows you to get into this room. You cover the pile with several inches of dirt with a chimney opening in the middle and then build a fire in the middle of the interior ‘room.’ You need to keep the mound very hot for several days, but make sure it stays cool enough to keep the carbon itself from igniting. This requires a great deal of skill and talent. If you can do it right, the heat will burn off everything in the wood except the carbon, leaving pure carbon fuel: charcoal.
You now need to build the smelter furnace. You can build it out of clay. You need to build a massive bellows to blow air through the furnace to provide the maximum in oxygen for the carbon fuel to burn; the charcoal can get hot enough to smelt carbon, but it requires an enormous flow of air to provide the oxygen for the burning to make this happen. You light the charcoal inside the furnace and have a team of people who switch off at operating the bellows; it is so hard that each person will only have enough strength to operate the bellows for about 5 minutes at the time before needing to be relieved.
You will need a line of people bringing in more fuel and stuffing it into the furnace. You will also need a small pile of iron-containing rocks (iron ore) in the middle of the furnace. (It is easy to find rocks that contain iron; they have a reddish-orange tinge. About 5% of the part of the earth we can get to is composed of iron; it is everywhere.) After a few hours of pouring fuel into the furnace and pumping the furnace full of air, the rocks with iron will start to glow red. (You can find many videos on YouTube showing this process.) After a few more hours, the rocks will glow yellow and then white. After they have been white hot for 2 hours, the iron in them will start to liquefy.
This iron had been iron oxide (rust). The heat of the fire causes the oxygen to fly away and combine with the carbon in the fuel to form carbon dioxide. This leaves metallic iron in a liquid form. The metallic iron is very heavy and drips down through the fire to the sand and dirt below.
You need to keep the rocks white hot for about 4-6 hours to get all the iron out of them. If you have about 20 pounds of iron ore, you will end up with about 5 pounds of finished iron. The bottom of the furnace should have sand that is shaped so it can catch the iron into a pool. Most people who smelted iron in workshops set this up so that there was a large pool in the middle to catch the iron and then little channels into smaller pools for the overflow. The iron hardened into this shape and people thought it looked like a mother pig feeding her piglets, so they named the product of this process ‘pig iron.’ Once you have ‘pig iron,’ you have finished the first step needed to make a steel nail.
You can go on to the second step: You need to create another charcoal fire and feed it with a bellows to make it extremely hot. You hold the pig iron with tongs and heat it in the coal until it is white hot again. While it is hot, you hammer it into the shape of a nail. This is an iron nail, not a steel nail. Iron nails can be used for many things, but they are not nearly as strong as the steel nails that we use today. To make a steel nail, you need to ‘work’ the iron nail continuously for several weeks. You heat it over and over again in a charcoal fire and hammer it into a flat sheet; then you fold the flat metal into itself. (The difference between steel and iron is carbon. ‘Steel’ is iron with between 1% and 4% carbon content; more carbon means harder steel. The carbon comes from carbon in the charcoal. It needs to be literally hammered into the nail.) Do this for about six weeks and you will have a steel nail. Then start again with another nail.
Obviously, when people made steel this way, steel was far too valuable to be used for things as simple as nails. Even iron nails, which are far weaker than steel nails, cost more than most people made in a week of labor. Since steel was so expensive, most people didn’t waste it by using it to make nails. They used their steel for more important things, generally knives and swords. Only the very rich could afford steel swords; often, military officers spent more than a year’s pay on a sword.
It is possible to make many tons of steel nails per day, but you can’t do this by hand. You need a truly massive and very expensive steel mill for this. Before about the mid-1800s, when corporate-friendly countries began creating extremely liberal laws to protect the rights of corporations (often giving them ‘human rights’ and defining them as ‘persons’ under the law), the corporate structures that existed on Earth didn’t provide enough protection for investors to allow them to justify making large steel mills.
Before this time, steel was only made in small shops and only tiny amounts were made. After the new laws were in place and the investors had the protection they needed for their corporations, people began to build massive steel mills that took advantage of processes that worked entirely differently but required enormous facilities to use.
Andrew Carnegie was the first to apply a new process called the ‘Bessemer Process’ for steel. He formed a corporation called the Thompson Steel Works to build his first mill and raised $100,000 to build the mill. (This was an enormous amount of money at the time, equivalent to $2 million in 2020 money.) This mill generated $40,000 a year in free cash flow, or 40% of the total capital cost, on average, over the next 20 years. Of course, his company built more and more mills, under different corporate names. In 1892 Carnegie consolidated these mills under one name, the Carnegie Steel company. The company was the first company on Earth that made steel that was priced low enough to make steel nails.
You could do the same thing Carnegie did and build a mill here in Pastland. You might be able to build for the same price he built for in 1872, or $2 million in Pastland dollars (2020 United States dollars). Chances are that no real-world individuals would be rich enough to build one of these plants with their own money and also be willing to devote the time and energy and take all of the risk. But a group of people working together might see this as a really great opportunity.
They could each put up a few dollars, buying shares in the company. They could hire people to run the construction process. As the plant was being built, they would see that the market value of their shares going up over time: even though the company is not operating and making profits, its assets are worth more because everyone will see it is closer to generating what are sure to be massive profits. Because people know this, they will be willing to pay more for the stock and the stock price will go up all through construction.
Once the mill gets into operation, it will start generating cash flows. For the first people to build the corporations that organized the construction of the steel mills, these cash flows are not free cash flows. They are earned cash flows. The builders worked very hard to make these cash flows. The cash that flows from their corporations and mills is not free as long as they are still involved with the corporations.
At some time in the future, the people who built the corporation will be out of the picture. Others will buy and own the shares of the corporation. These people bought into properties that already produced cash flows before they became involved. If they buy with freehold ownership, they are essentially buying 100% of the free money. If the people in Pastland want, we can decide to issue corporate charters that provide total rights to all cash flows generated to the owners/builders for only a certain fixed amount of time, say 15 years. After that, the original charter will expire and a new charter will be issued that changes the method of control to socratic leasehold ownership.
If we do this, we, the people, will have a flow of wealth coming to us from each and every corporation on the planet. In fact, just as was the case for the Pastland Farm, the great majority of the free wealth from the corporations will flow to us. The socratic leasehold owners of the corporations will want their corporations to operate efficiently and smoothly so that they will be able to afford to make their leasehold payments and keep all extra money after their leasehold payments. They will have incentives to improve the corporations whenever they can so that they produce even higher free cash flows. Eventually, the improvers of the corporations will be out of the picture and will sell their shares. People who want to buy mature corporations will be buying properties that are like mature farms in many ways. They generate cash flows that the current owners of the companies didn’t do anything to generate. We can set up a system so that these people will have the right to buy and own rights to the corporation, but to do so, they will have to follow rules created by the human race to protect the human race and planet Earth, and share the flows of free wealth with the members of the human race, in the same way that people who buy and own rights to farms and other wealth-producing properties have to follow rules and share the wealth.
The Pastland Steel Corporation
One of the people in our group, a man named ‘Fred,’ used to be in the steel business back in the future. Fred built and operated small steel mills. Although the mills his company built were small by the standards of 21st century Earth, they were still quite large and expensive plants, requiring very large investments.
Fred knows how to build a steel mill. He has the blueprints, and he has found where to get the necessary materials. Fred’s problem is money. He can’t raise the money needed for a mill on his personal credit. Several investors have told him that they are willing to make the investment if Fred sets up a kind of business enterprise that has a separate existence from himself, and which has a set of rules that will allow it to continue to operate even if Fred himself should lose interest in the project or otherwise become unavailable to run things.
Fred knows that he can set up a business that will make and sell steel and generate very high cash flows. But this business will have to have legal rights and protections and, to get these rights, Fred must get the permission of the administrators of our world. So far, we haven’t formed a government (we haven’t needed one). He will have to call a meeting and try to convince the people to allow him to form this kind of business, a ‘corporation.’ The investors have told Fred that he absolutely must form a corporation, or they simply won’t invest, period. Fred decides to talk to Frances about his problem. Frances says that she can set up a system that will show the landlords of the Earth (the members of the human race) that everyone can benefit from corporations in very real and understandable ways.
The steel mill will do basically the same thing as the Pastland Farm: it will turn free or almost-free materials that already exist into things of real value to the human race. (The farm turns seeds, water, sunshine, and air into rice; the mill turns dirt and sunshine into steel.) The mill will produce an enormous free cash flow and, using the socratic leasehold ownership system that we used for other properties, every single member of the human race will benefit from the existence of the mill in very understandable ways (everyone understands what it means to get money). Everyone’s life will be better if steel tools are available in stores. We will all get more cash, and have more to buy with this money, if we have the mill than otherwise.
The Pastland Steel Corporation
Fred gets together with his investors and builds the mill. Let’s say that, after a few years, the Pastland Steel Corporation is making 3,150,000 pounds of steel a year. It sells this steel for $1 a pound so it generates $3.15 million in revenue. The company has almost no costs. It pays about $200,000 for electricity, and another $250,000 for various other costs, including the costs of the officers and directors of the company. It repays the loan to build the plant at a rate of $300,000 a year, so its total costs are $750,000 a year.
After all these costs are paid, there is $2.4 million left over. This is the free cash flow of the corporation. This money goes to the shareholders. Fred is the majority shareholder so most of this money goes to him. Over the next few years, Fred buys out the other shareholders. (People often do this: they need help to realize their idea but once the system they envisioned is in place, they have enough income from their share of the revenue to buy out their partners.) After 15 years, all of the shares of the company convert to leasehold ownership. Fred decides, at this time, that he will get out of the business and retire. He will sell leasehold rights to the entire company.
He has an appraiser evaluate his leasehold title. The appraiser says that other leaseholds have sold for properties that generate the same free cash flow $10 million. (The Pastland Farm generated this free cash flow and sold for $10 million.) But these other properties have lower risks than the steel industry. Because of the higher risk, investors will need a higher return. The appraiser says that the leasehold rights to the Pastland Steel Company should sell for about $8 million. Here is why: At this price, the leasehold payment will be $1.6 million. The leasehold owners will collect the $2.4 million a year in free cash, give $1.6 million of this money to their landlords (the members of the human race), and be left with $800,000 for themselves. They invest $8 million and get $800,000 a year as returns, so they get 10% a year.
This is a much higher return than the investors in the Pastland Farm got; they only got 4%. But farms are less risky. The leasehold owners of the steel company are making higher returns to compensate them for taking the higher risk. The appraiser says that, back in the 21st century, investors were willing to invest in companies with the risk profile of steel companies if they could get 10% returns. The risks are about the same here in Pastland, so they should be willing to accept the same yields. If they do, they will pay $8 million for the leasehold rights to the steel company.
For the first 15 years, Fred and his shareholder partners got everything. There were no taxes; they didn’t have to pay withholding for their workers, sales taxes, excise taxes, income taxes, or corporate taxes. They got it all. After 15 years, the company is a mature company. If you are looking for an investment, you have options. Let’s consider two different options:
1. The first is the leasehold rights to the Pastland Steel Company.
2. The second is a leasehold on a new farm called the ‘New Pastland Farm.’ This is a new rice farm that is basically the same as the original Pastland Farm, but it hasn’t yet been improved or altered in any way.
Both investments generate free cash flows of $2.4 million a year. No matter which leasehold you buy, you will be buying the right to lease a property that generates $2.4 million a year in free money.
The Pastland Steel Company is being offered for $8 million. If you buy, your leasehold payment on this property, at 20% of the price, will be $1.6 million leaving you $800,000 each year, a 10% return on your invested capital. The new Pastland Farm is being offered for $10 million. Your leasehold payment on this, at 20% of the price, will be $2 million leaving you $400,000, a 4% return.
Which is the better investment? That depends a lot on your personality. Some people are willing to take a little more risk in exchange for more reward. Other people are not. If you aren’t willing to take on the greater risk, you will be better off with the farm. If you are willing to take on less risk, you are better off with the steel company. People with money to invest will have choices.
Basically, they will have the same choices they have in the world today. In the end, the same basic market forces will determine the returns investors get as determine them in our hundred percent ownability societies. People will look at the amount they get after all payments. They will consider the risk of the investment. They will pay up to the price that gives them the return they need for the risk of the investment.
There are certain things that are currently (in our 21st century world) produced in enormous quantities that make our lives much better than they would be without these things. I want to go over three of these things: steel, cement, and silicon wafers (which can be used to produce electricity in photoelectric panels, to direct electrons in computers, phones and other electronic devices, and to direct or create light in light emitting diodes, television screens, video cameras, and other devices).
These things have become so ubiquities in our world that we have a hard time imagining what life would be like without them. These three things are literally made of the same things the planet we live on is made of. We can have as much of all of them we want without ever risking running out of the needed raw materials or even running low. All can be produced in any quantity we want without doing any damage to the environment.
If we have these things, together with the inherent incentives of the socratic system, we can create a paradise. We can have high rise steel, glass, and concrete skyscrapers that allow us all to live in what poets of the past represented as heaven, high in the clouds with all manner of luxuries and comforts at our disposal. We can have transport systems that move us anywhere we want to go rapidly, cheaply, and comfortably. We can have just about any manufactured good we want basically for the asking.
Let’s go over these three ‘necessities’ and see that they will all be made in the socratic leasehold ownership system, the people who run the companies that make them will get the same percentage returns on investments that they get in our world today, and we, the people of the human race, will wind up the main beneficiaries, getting the great bulk of the free wealth that flows from the companies that make these things.
‘Hydraulic Cement’ is a natural material made from limestone. Limestone is a rock made of calcium, which happens to be an extremely abundant material (the fifth most abundant material on the surface of the Earth).
Calcium dissolves in water so, over time, water removes calcium from rocks that contain this mineral. The water carries the calcium wherever the water flows. When the water stands for a time, the calcium precipitates out (goes to the bottom). As a result of this process, vast parts of the world that used to have standing water on them have layers of limestone that are hundreds or even thousands of feet thick.
It is very easy to get this limestone.Just dig it up. We will never run low on limestone: it is one of the most abundant and easiest-to-find materials on Earth. Limestone has been used to make cement for a very long time. It is pretty easy to make into cement: grind it to powder and mix it with water. When it dries, it is as hard as limestone. While this is pretty hard, it isn’t super hard: you can still easily carve your initials into limestone. It has another, more serious problem: it dissolves in water. This is clearly no good for a bridge or high rise building: you don’t want your bridge or building to dissolve when it starts raining.
In the early days of the Roman Empire, chemists found ways to process limestone to create a cement that doesn’t have these problems. The limestone has to be heated in a very hot furnace for about 28 hours. After this, it ‘sinters’ or disintegrates into a very fine powder. This powder can then be mixed with volcanic ash (also a very fine powder) and the result is something called ‘hydraulic cement.’ It can be mixed with water and left to harden. It will get much, much harder than the lime-based cement and, most importantly, it will be totally waterproof when it is finished. This product is the same as the cement you get if you go to Home Depot today and buy a bag that says, ‘Portland Cement.’
Roads made of this product last thousands of years. This isn’t speculation; you can find such roads just about anywhere Romans lived, all more than a thousand years old, that are still in use today.
Pipes and aqueducts made of hydraulic cement can carry water and will not dissolve; again, you can find many aqueducts, irrigation ditches, and even pipes that the Romans made that are still being used thousands of years after they were made.
Cement is very useful. If you mix it with sand, you get mortar cement that you can use to attach just about anything made of rock to anything else made of rock. You can pour a cement/sand mixture into molds to get cement blocks; you can stack the blocks to make buildings more than a hundred feet tall. If you mix cement with gravel, you get a product called ‘concrete.’ It is extremely strong. You can pour this into a mold of any shape, and it will harden into a rock in that shape that is as strong as granite.
Do you need a dam that is a thousand feet high, a half mile wide, and 100 yards thick? Just make a mold and pour it full of concrete; the dam will be as strong as if a single natural rock of granite had formed there when the Earth formed. Do you need a bench, a table, or a floor for a garage? Make a mold, pour it full of concrete, and when the concrete is hard in about a week, you will have the thing you need.
If properly assembled, you can make concrete structures of immense size. Nearly all skyscrapers are made of concrete reinforced by steel; all of the tallest buildings in the world are made this way, all dams and nearly all bridges take advantage of large amounts of concrete. Although the raw materials needed for hydraulic cement are incredibly cheap and abundant, these materials have to be processed a certain way to turn them into the finished product. The processing plants are enormous and cost millions of dollars to build. Modern cement plants work like this:
They start with limestone that is crushed into a fine powder (this is called ‘quicklime’ or ‘natural lime’). They put this material into a massive rotating kiln. The lime has to be heated to an extremely high temperature and rotated constantly for 28 hours. After this time, the lime ‘sinters,’ which means it disintegrates into a fine powder. This product is called ‘hydrated lime’ and is the raw material for cement. The processing of the lime changes its crystalline structure; now, if it is mixed with a little water, it becomes a semi-solid plastic that forms into a super hard and dense product that is as hard and waterproof as granite.
The hydrated lime is then mixed with a few common and cheap fillers. It is sold in 40 kilo bags (90 pounds in the US) everywhere building materials are sold. If you want to make hydraulic cement, you need a very large and very expensive machine, the super-hot rotating kiln. Cement plants are big and expensive, but they produce very high cash flows. Generally speaking, if the free cash flows from a cement plant were applied entirely to the cost of building the plant, it would take ten years to pay them back. This means that if you started with enough money to build a cement plant and then used it to build that plant, then operated the plant, it would take a full ten years for you to just break even and recover the amount you spent building the plant.
Because it costs so much to make cement plants and it takes so long before they will begin to make a profit, most single investors aren’t going to put their money into these plants. It is just too risky. A lot can happen to the economy in 10 years. If it falls apart, and the price of cement falls (and this happens whenever the housing market collapses), you could be out everything.
However, inside of corporations, it definitely makes sense to build cement plants. You can get together with a large number of other people and build the plant. You can issue shares and use the money to build the plant. If you want your money back, you can sell the shares. (As the plant is built, the shares generally rise in value: it is closer to the time when the plant will pay dividends.) When the plant exists, it will begin making a lot of money. After this happens, you don’t have to wait another 10 years, or even another 10 days, to get back your investment: once the plant is operating, everyone will see it as a cash flow-generating property. They will be willing to pay a lot of money for it. If you want, you can sell your stock for many times what you initially invested, even if the plant has only been operating for a few days. If we want hydraulic/Portland cement here in Pastland, we can have it. But we will need a corporation to produce it.
The Pastland Hydraulic Cement Company
One of the people in our group in Pastland, a man named ‘Ned,’ managed a cement plant back in the 21st century. He knows how all the parts operate, and he has drawn up blueprints to build one here in Pastland. Back in the future, Ned made a lot of money taking ordinary limestone, which he could get basically for the cost of hauling it, turning it into very useful hydraulic cement-based products.
We have a lot of building going on here in Pastland. A lot of people would love to have this product. Ned has talked to builders who have told him they would gladly pay very high prices if he could supply them with hydraulic cement.
Several investors are willing to back the project. But they aren’t wiling to invest in Ned personally: if something should happen to him, and he was the only one involved, the project would collapse, and they would lose all their money. They need a corporation to run the project. They petition the administration of the human race for the right to form a company they intend to call the ‘Pastland Hydraulic Cement Company.’ This petition is granted under the condition that, after 15 years, the company will revert to control with leasehold ownership.
Ned builds the plant and starts making cement. The plant makes 3,150,000 pounds a year, which the company sells for $1 a pound. The costs run $200,000 a year (5¢ per pound). He also must pay interest and principle on the loan he took out to build the plant, which adds another $550,000 to his expenses. After he pays all this, he has $2.4 million a year left over.
This is the cash flow of the Pastland Hydraulic Cement Company. It is not a free cash flow; it is earned. Without Ned’s work, this plant would not exist, and the cash flow would not exist. For the next 10 years, Ned collects everything; there is no tax. He has done something that brings great benefits to everyone on Earth and his income from this company is his reward. But after 15 years he retires.
He hires an investment analyst to sell the leasehold rights. The analyst splits the company into 100,000 shares and sells each share for $80, generating $8 million for Ned. He pays no taxes on this income; there are no taxes in this system. Buyers of the shares pay $80 per share to become the owner of a share and $16 a year (20% of the $80 price) as a leasehold payment to remain the owner. The company generates $24 per share in free cash flow and pays this money out to shareholders. If you buy a share of the company, you will get $24 a year from the company and turn over $16 of this to the human race as your leasehold payment; this will leave you with $8 a share, a 10% return on your invested capital. You win. Ned wins. The human race wins. Everyone wins.
The Pastland Solar Energy and Computer Company
The third really critical product that we will want and need, but can’t have without corporations, is the starting material needed to make computer chips, photoelectric generating panels, super-efficient lighting devices, cameras, smart phones, television sets, computers, and thousands of other products that most people use so much and have grown so dependent on that it is hard for them to imagine life without them. These devices all use the same starting material, something called ‘silicon wafers.’
If you have silicon wafers, you can make solar panels very easily. If you check on YouTube, you will find a great many videos showing people doing this; you can buy the wafers on Ebay and build as many solar panels as you want.
The silicon wafers are made of silicon dioxide, the most abundant material on the surface of the Earth. (About 87% of the crust of the Earth is silicon dioxide; it is also called ‘rock’ and ‘sand’ and ‘gravel.’) We obviously have as much of this as we want, and the raw materials are so abundant that they are free for the hauling.
However, you need a very expensive machine called a ‘crystallizing furnace’ to make the sand into a silicon wafer.
Here in Pastland, we have a lot of building going on. People need electricity for their homes, offices, shops, and apartments. Solar can provide unlimited energy at very low cost. Barry wants to build a crystallizing furnace to make silicon wafers. Once we have the wafers, we can use them to make solar panels. People may also use them to make LED lighting devices, and various other electronic devices; they all start with the same product: silicon wafers.
Again, his problem is money. He doesn’t have the money and can’t borrow it on his personal credit. He asks Frances if she can do the same thing she did for the others and create a corporation for him. He wants to call it ‘The Pastland Solar Energy and Silicon Wafer Company.’ He wants to buy the leasehold rights to this company.
We have a vote. We decide we want this company. Frances does all the paperwork (of course, she charges Barry for her time). Everything is the same as the other corporations. The company will start as a freehold company; it will covert to a leasehold corporation in 15 years. Barry gets his investment and builds the machine. He starts making wafers and finished solar panels.
He produces 315,000 solar panels a year and sells them for $10 for each, so it generates revenues of $3.15 million a year. The main input needed to make the solar photoelectric coating is silicon dioxide, another name for ‘sand.’ It is literally the cheapest raw material on Earth. Barry pays various costs, including the cost of the sand, the payments to the investors who put up the money to build the machine, and the salaries of the directors, the president (Barry) and other officers. These costs total $750,000 a year.
After paying these costs, the corporation has $2.4 million a year left over.
This is the free cash flow of the company.
After he gets the company going, Barry loses interest in it.
He wants to retire.
He contacts an investment analyst to sell his shares. The analyst says that the freehold on the corporation will last for 10 years, after which it converts to a leasehold. After the conversion, the company will be worth $8 million. Right now, however, it generates a return of $2.4 million and, at the current market yield for corporations of 10% (the yield generated by the steel company and cement company), the Solar company would be worth a lot more than this. There are some rather complicated formulas needed to calculate this. (See sidebar for more info.)
But if a buyer pays $17,831,307, she will get a 10% yield on the investment perpetually. (If you want to find out why this is the right figure, you can find the information in books on financial analysis and stock pricing.) The human race won’t get anything from this company for the next 10 years; after that, we will share in the free cash flow for the rest of time.
Almost everything made in our 21st century world today comes from corporations. People don’t form corporations for frivolous reasons; we know this because corporations have to pay taxes and other costs that non-corporate entities don’t have to pay. People wouldn’t form corporations unless they felt they needed to do so.
In Pastland, we can take advantage of corporations to make the things that corporations make. We don’t have to reinvent the wheel; the wheel has already been invented and we can simply adapt it for our uses.
One important difference in the socratic leasehold ownership involves the rules of corporations. In sovereignty-based societies, the world is divided into individual sovereign entities called ‘countries.’ Each country has its own rules. If the rules of incorporation in one country don’t suit a group that wants to form a company, they can go to another country. The leaders of the countries want the tax revenues that the corporations bring and both the working class and the leaders in governments want the jobs. The corporations can basically shop for countries, offering to locate themselves in whatever country offers them the greatest benefits.
As a result of this competition, corporations in our world today have been able to get rights to do truly horrible things. They can rape the land of any and all resources it contains, they can exterminate entire species of animals, they can expose workers to conditions that they know will kill the workers, they can create toxins that will never break down into anything safe, they can exploit children and the helpless, all with the permission of the government of the country the company is incorporated in.
This competition works because there are a lot of countries and the countries don’t have to listen to or even care about the desires of the human race. The people forming countries can talk to the leaders and tell them that they will bring jobs; of course, they will. What do the countries have to give up to get the companies to locate there? Well, in sovereignty-based societies, all countries need jobs very, very badly. They will give up a lot to have them. Does the company keep people employed by raping the world? Does it keep people employed by transferring toxic waste from other countries and burying it in drums that will rust out in a few decades? The countries have to compete for the jobs and, if their country won’t allow it, some other country will.
What if corporations want to do things that are so horrible that they can’t get any country to let them do these things through open negotiations? Sovereignty-based societies grant the entities called ‘governments’ incredible authority. The governments can do many things without the people even knowing about these things. People in government are just like people everywhere: they are greedy. A few extra million in the pockets of the right political officials and, in some countries, corporations can do anything they want.
In sovereignty-based societies, there is no effective way for the people of the world to keep corporations from harming them. Even within ‘their own countries’ the people generally can’t do much more than choose which of two leaders will be in charge. They don’t determine which corporations will exist or what powers they will have. The people of individual countries have no control at all over what happens in the great bulk of the world.
Our group in Pastland could have divided the world into countries if we wanted. But we decided that this would lead to violence, destruction and other problems. We decided to not divide the world into countries and to consider it a crime for people to organize to use murder and violence to get the majority to accept that a certain group of people has special rights to a part of the world. We, the majority, easily have the ability to prevent a minority of our members from using force to make us accept they are a ‘country.’
We have this ability because we live on a bountiful world; enormous amounts of wealth flow from the world over time and we have figured out how to cause the great bulk of this bounty to flow to us, the members of the human race. The majority is in charge because we decide what happens to this wealth in elections; if the majority of the people of the world don’t want countries, we can make sure there are no countries.
Since we are in charge in general, we are in charge of corporations. If we don’t want corporations, we can simply not create them. They can’t exist without legal rights enforceable by some sort of court system. If we don’t grant these rights, they won’t exist. If we do decide we want corporations, we can create the rules. Leasehold ownership system gives the landlords the rights to make rules. The people who own leaseholds will have money invested; they will always have five times the leasehold payment invested as a price. We can set the rules. They follow the rules, or they lose their rights and all the money they had invested. We, the people, will control what happens to corporations.
Corporations can give us wonderful things that we wouldn’t have without them. They can turn the ordinary materials our planet is made of into wonderful things that can make life comfortable and luxurious for us.
Consider this: The most abundant material on our planet is silicon dioxide; 87% of the part of the Earth where we live, the ‘crust,’ is made of this material. Corporations can turn this material into photoelectric panels that can make all our electricity, into CCD devices that can record video and audio, into LCD screens for televisions and smart phones, into LED lights, and into thousands of other products. This happens to be the main component of glass and is the ‘filler’ that is bound together with cement to turn it into concrete, the main material in skyscrapers. We can have all of these things we want.
The second most abundant material on Earth is aluminum, making up 8.7% of the crust of the planet. Amazing; this happens to be the most versatile and useful metal known. Corporations can remove it from the rocks and sand that contain it with simple electricity, which can come from solar panels. We can have all the aluminum we want.
Next comes iron that we can use to make steel. Next after that comes calcium, the main component in cement. Everything we need to have rail systems for bullet trains is right here; all we need are the factories and we already know what it takes to get people to build the factories. We need to let them organize into corporations that have the right to build these facilities and profit by building them.
Everything we need for jets and cars and boats is right here; everything we need for luxury high rise skyscrapers is right here.
If we have socratic leasehold ownership of corporations, the great bulk of the free wealth that mature companies produce will flow from the companies to the human race. We can use this wealth to pay for things that we, the people of the world, want. If we want paradise, we can have it.
The Big Picture
In his book 1984, George Orwell writes:
From the moment when the machine first made its appearance it was clear to all thinking people that the need for human drudgery, and therefore to a great extent for human inequality, had disappeared. If the machine were used deliberately for that end, hunger, overwork, dirt, illiteracy, and disease could be eliminated within a few generations.
Why hasn’t this happened? Why is it that greater production of wealth is associated with ever more people living in poverty?
The problem doesn’t have to do with inability to create wealth. We can create immense amounts of wealth. A few centuries ago, thousands of people working fulltime were required to produce a little bit of usable steel; now, automated mills can churn out thousands of tons a day. They basically use nothing but dirt and electricity; if the electricity comes in the form of solar energy, they only use dirt and sunlight. Automated factories can turn the steel and other materials into electric cars. Less and less labour is needed for production. Machines do more and more. The machines can work 24 hours without taking a break, at speeds that no humans can come close to matching, with a reliability and consistency no humans can match.
The reason that the product of the machine does not get to the people is that the wealth doesn’t get to the great majority of the people. The majority of the people of the world are not owners or part-owners of cash flow-generating properties and have no rights to share in the wealth these properties produce. The product of the machine is sold for money.
In our world today, virtually all of the machines belong to corporations. The corporations get the money from the sale of the things the machines make. The corporations use a tiny part of this money to pay for the materials taken from the world to make the products—the sand (silicon dioxide), iron, aluminum ore, and other raw materials)—and the rest of the money is free cash flow.
Who gets this free cash?
The owners of the corporations.
In our 21st century world, the people of the world didn’t form corporations or make the rules for the way corporations would be owned. Rich people, working with powerful people and governments, formed corporations. The people who wanted corporations wanted to own them the same way they owned cash flow-generating land. They wanted all of the free cash flows of the corporations to flow to the people who ‘owned’ the corporations. The human race had nothing to say about this. We were not asked.
Here in Pastland, we, the members of the human race, can decide what we want. Do we want corporations? If we do, we can decide the way the corporations will be controlled. Do we want people to own absolute rights to corporations? If so, they will get all of the free money and we, the members of the human race, will not get any of the free money.
But we can decide to set up a system for ownership of corporations that is basically the same as the system we set up for ownership of land. We can decide to allow people to build and own corporations provided they agree to follow certain rules that we set and, after a certain length of time, to share the free wealth the land produces with the members of the human race.
The television show ‘Star Trek,’ is about a group of star travelers in the future. On this show the people have a machine that can make basically anything. You tell the computer what you want. The computer has voice recognition matched to the preferences of everyone who might use the device. Ask for ‘tea, Earl Grey, hot’ and it will know the exact temperature you mean when you say ‘hot,’ the exact variety and type of Earl Grey tea you want, and the size and shape of the cup you prefer. The replicator has all of the materials ready in a central repository. It uses a fictional teleportation device (a ‘transporter’) to move the devices to the dispenser and gives you what you want. It can give you anything. Say you want a 2020 Galaxy S9 phone. You can say ‘2020 Galaxy S9 phone, ready to use on 2020 Earth.’ The computer knows what color you like and all your preferences. It has any data you might want on your phone on a central server; it downloads everything and has it ready for you. The finished phone materializes in a matter of seconds in front of you and you can walk to the machine and pick it up.
In our 21st century world, we don’t have a single machine that will do this, but a collection of corporations does the same basic thing. Say you want a new Galaxy S9 phone. You say ‘Alexa,’ I need a Galaxy S9, set up like my old phone on the Verizon network, delivered here as soon as possible. The computer recognizes your voice. It repeats something like ‘we can deliver a fully programmed Galaxy S9 to your address in 3 hours for $400; do you authorize this charge?’ If you say ‘yes’ the computer sends to the nearest vendor that can fill the order. The tech plugs the phone into a server that downloads all your information from the cloud and programs it into the phone. The tech puts the phone back into the box and gives it to the courier, who brings it to your door.
The computer will then recognize that the distribution center needs one more Galaxy S9 to bring its inventory to normal levels. It will send a message that will be bounced off of several satellites and end up at Samsung’s headquarters in Japan. The computer will check its total inventory globally of S9 phones: if it has excess phones in any of its centers, it will send one phone to the distribution center. If there is no excess, it will send a message to the factory in Shenzhen, China that makes the phones.
This factory is totally automated. It makes a lot of different phones, not just the S9. It is signaled to make an additional S9. The machines whir to life, all the components are transported by belt to the assembly machine and, in a few minutes, a new S9 rolls off the line, is packaged and labeled, with the shipping costs calculated and paid, and a shipping label attached; it goes to the loading dock waiting for the carrier pickup.
All of the parts are made by other machines. None of the work manufacturing the phone components or the phone itself are done by hand by human beings: humans are simply not capable of this work. The etching on the wafers, including the wafers for the screen, the processors, the radio transmitter, the multiple television cameras, and the many censors, are only a few atoms thick; each of the printed wires is smaller than a wavelength of light and therefore impossible for anyone to even see with a light-based device (like a human eye). The screen crowds 4,233,600 individual lighting units, or pixels, each of which is capable of more than 3 million colors, into an area about the size of a human hand. No person could individually place these lights as needed for the phone. It has to be made by a machine.
The raw materials are mostly sand—silicon dioxide—and aluminum. These things are the first and second most abundant things on earth. They are everywhere in this vast planet. Somewhere, an automated loader starts with these items. It cleans and sorts the sand granules; it feeds the right ones into the crystallizing furnace, it operates the furnace to turn out a batch of silicon wafers, it then passes the wafers on to another machine. The machine stamps them to get them to the right size and shape; it inspects the wafers to make sure they don’t have defects, it etches in the networks of wires, and then it attaches any needed hardware to attach it in the phone and passes it down to the next machine.
Each of these machines is incredibly expensive; they cost, in some cases, billions of dollars. But they turn something that is as common as dirt—it is dirt—into devices that are worth incredible amounts of money. Once built, these machines can stamp out thousands of phones per day, with the total cost of each additional phone produced equal to only a few pennies—the cost of the sand and aluminum that goes into them. The phones can then be sold for hundreds of dollars (thousands if they are brand new and have features people are willing to pay for).
All of the machines involved with this process are incredibly complex and fantastically expensive. No single individual would ever be able to afford to build these machines. In many cases, these machines cost so much that they have to operate for many years before they have even made enough to recover the construction costs. No one would invest in these machines without some way to create some sort of legal entity that will exist and continue to operate no matter what happens to the individuals involved. But with thousands of corporations, all working together, the process is seamless.
More and more, the things we make are being made by this process. Humans are being cut out of the production system. Humans are unreliable. We tire easily, we need to stop to take breaks from time to time, and human labor is fantastically expensive relative to the cost of operating the machines. Machines can do the work very cheaply and many machine owners compete against each other to sell their products by offering lower prices than the competition. The cost of products falls and falls and now, many things can be bought for a price that isn’t much more than the cost of the inputs (which often means ‘the cost of a pile of sand), and the costs of the labor for very few tasks that still have to be done by humans.
This system is almost like the replicator system on the TV show. The machines do everything. These machines are designed, financed, built, and operated by corporations. It is really impossible to imagine a single individual, no matter how rich, putting billions of dollars into a machine that may or may not work and, if it does, may take decades to generate enough cash flows to pay for itself. To have these machines, we need a system that allows projects to proceed over a long period of time, with investment systems that allow people who invest at early stages to get their money back, plus a nice return, even before the machines are able to be turned on and tested. We need a structure like the corporate structure that dominates the world in the 21st century.
On 21st century Earth, we already have the technology we need to have consumer goods that are so abundant and cheap that ordinary people can have things that allow them to live in luxury. These things can be produced at incredibly low prices. The problem is that the society we have is based on principles that make it impossible to get these items to the people who need and want them.
The type of society we have now, the sovereignty-based society, is based on the premise that the everything is ownable and ownership is an absolute concept. The owners of the land get and deserve everything that comes from ‘their’ land. The owners of corporations get and deserve everything that comes from ‘their’ corporations. People who don’t own anything don’t get and don’t deserve anything at all unless they get jobs and work for the owners.
We have seen that there are certain forces associated with sovereignty-based societies that cause wealth to get more and more concentrated over time: the rich get richer and can use their returns on wealth to buy more stock or land or other cash flow-generating properties. Machines replace workers, the unemployed compete to get the few jobs left by offering to work for less and wages tend to fall over time. As jobs disappear, the disparity between the classes grows. Now, in many areas, the 1% richest people get more income each year than entire other 99%.
The system that we have now allows people to get goods if and only if they have money. The great majority of the people are in the working class; they only get money if they work. The machines are taking away their jobs, making it harder and harder for them to get enough to eat. If we extend the mechanization trend out to the future we can see how dangerous this type of society really is: imagine that everything we need and want is made by machines that have already been built, are built to standards where they rarely ever break down, and can be repaired by robots that also already exist. The machines can make everything we need and want.
But how are the 99% of the people who weren’t born rich to buy these things? Once the machines have been perfected, there are no jobs. Where does the working class get its income? It may be easy to say this: just tax the corporations. If we had a socratic society, or some other society that is NOT based on countries, this might be possible. But in a society that divides the world into countries, it isn’t. There is a simple reason for this: corporations are simple legal entities. They can move from country to country as easily as signing a few electronic documents. If one country taxes them too high, they can simply move their machines to another country with lower taxes. We can see the result today: the corporations move their machines and their headquarters to places that give them tax breaks. The leaders want to keep the corporations, so they offer tax breaks to keep them in place. The other countries that want the corporations to move there offer still lower tax rates to get them to move. As long as the world is divided into the entities that we were raised to call ‘countries,’ and as long as these countries have sovereignty, we can’t come close to making up the loss of income for the working class with taxes. In fact, tax rates for corporations are currently in a kind of free fall.
The basic idea behind sovereignty-based societies is flawed. It starts with the premise that whoever can come to an area and claim it, using the same incantations and ceremonies that Columbus used to claim land for Spain, becomes the owner of that part of the world, with everything that part of the world produces and contains belonging to the owner. This is a primitive system. It may have worked for us before. In fact, we can say it definitely brought us many advantages we otherwise wouldn’t have had. (A large percentage of the technologies that we have now were created to make weapons so that countries could fight each other. Without the intense pressure of war, many of these things, including everything from steel to the internet, would probably not exist.) But we are at a point now where we can take stock of our general situation.
There are other ways to structure our societies. Imagine, for a moment, that you had been born into a different society. The machines are still there and still make the same things. The machines are owned by the same corporations that own them now. But the people who made key decisions in this other society realized they were doing a favour to the people who wanted corporations. The people in this other society had decided they wanted people to buy and own rights to use land, but not buy and own the land itself. They set up a socratic leasehold ownership system to own land. When people wanted corporations, they set up a socratic leasehold ownership system for corporations too.
The machines make the same things. They sell them for the same prices. Prices are the same. Cash flows are the same. But in this other society, the owners only own rights to keep a portion of the free money, plus any extra money they can generate themselves from improvements. The great majority of the unearned part of the free cash flow, including the flows that were already in place when the current owners of the corporations bought their stock, flows through the owners to the human race. You, as a member of the human race, get a share of this free money. These corporations generate truly massive free cash flows, so you get massive amounts of money from them. The more free cash flows the corporations generate, the more you and everyone else get as incomes.
The people who own the corporations still can make money if they can improve the machines. Their leasehold payments are fixed (20% of the price they paid for their stock, payable each year) and will not change as long as they own. If they can improve the machines and make them produce more, they can keep the extra. (If a person owns only a share of the company, she will only keep a share of the money, of course. That is why most people today who have plans to make significant improvements in corporations buy the entire corporation. They want the whole thing; they will do the same thing in the socratic system.) They have the same powerful incentives to improve in this system as they do in the sovereignty-based system. (In fact, the improvement incentives are stronger in the socratic because it doesn’t have taxes.) If there is a way to improve the machines so they produce more free cash flows, the leasehold owners will improve.
Eventually, the leasehold owners who made the improvements will sell their shares. Because the shares produce higher prices, they will sell for more money. When they sell, the leasehold payment will reset to be 20% of the higher value. The human race will get more.
Our income comes in automatically and without any effort or risk: the owners of the leasehold shares always have five times more money invested in the price than they pay us each year. We don’t need taxes and we don’t want them. We get the lion’s share of the unearned wealth the land produces over time. We don’t need to take anything anyone has done anything to earn.
In this system, mechanization is good. Machines produce things far more efficiently and cheaper than humans. The machines will produce the items, the corporations will sell them and pay the costs, leaving the free cash flow. The more free cash flows from the corporations, the more the human race gets. Each job that disappears means lower production costs and more free cash to divide among the people of the earth.
The corporations take free or very cheap items and turn them into very valuable things. (This is the same thing the Pastland Farm did; it took air, water, and a few seeds, and turned them into millions of pounds of food. The food then sold for its market value and the money generated, minus the cost of labor and supplies, was the free cash flow.) We, the people of the planet Earth all share in this bounty.
As long as we have a socratic system, life will be good. As time passes, and the people who want to form corporations are able to build better and better networks of machines to turn the raw materials the world is made of into goods like smart phones, electric sports cars, high rise skyscrapers, appliances, and other things that make life better for humans, life will get better and better. The leasehold owners will get all increases for the time they own; there will be no taxes either on their incomes or capital gains. The harder they work to improve their corporations, the more money they will make. Eventually the people who made the improvements will be out of the picture. We will all be living in a more bountiful world. We all share the bounty. Life just gets better and better.
All the atoms that are in all of the homes, phones, television sets, cars, skyscrapers, bridges, photoelectric solar tiles, and jets, all existed 3.4 million years ago, when the first proto-humans evolved on this planet. All the iron, silicon, aluminum, calcium; everything was here. These atoms were just arranged differently than they are now.
The molecules and atoms that make up the products that make our life better are incredibly common. Look at outcropping of rocks, anywhere on Earth. The white streaks are aluminum oxides that make up 8.7% of the crust of our world; the reddish-orange streaks are iron oxide, which makes up 5.9% of the crust of the world.
We have no shortage of materials. But these materials are not useful in the form that nature made them. Iron oxide (‘iron ore’) is also known as ‘rust.’ We can’t use rust for much of anything. But if we have a large network of machines that cost staggering amounts of money to build, the oxygen can be removed from the iron oxide to create pure iron; we can then add carbon to the iron to turn it into steel that is strong enough to support bridges that span miles. If the machines don’t exist, we have only rust. But if the machines do exist, we can have all the steel we want.
As a practical matter, mortal humans aren’t going to build these machines as individuals. The machines cost far too much; they are too risky, and the projects take too long to payback the investment and start generating profits. People can make money undertaking these projects, but they need a ‘shell’ organization to run the projects, keep them operating, carry them through to completion, and then operate them long enough to repay the costs and generate profits for the investors. We need the kind of organization we call ‘corporations.’
If we want them, we don’t have to reinvent the wheel. We don’t have to start from scratch and figure out how to build these organizations. We can simply adapt organizations that already exist for our purposes.