Reflections on my first year as a small firm

April 15th 2015 was something of a landmark for me, since i started operations of my own firm on January 15th 2014, and if taxes were going to be the death of that firm, this past Wednesday would be their last chance to prevent me from calling 2014 a victorious year. i’m very pleased to have successfully made every mortgage payment out of the proceeds of a small enterprise, rather than a wage, for a full year. i’m even more pleased with some (though not all) of the changes to my work practices that have been costlessly achieved through the change, and i think i can safely say that self-employment or the operation of a small firm is definitely preferable in practice to wage labor under the conditions in which i have worked, and furthermore that these conditions are commonplace and not exotic. And i can now say with certainty that the problem of keeping the lights on and the family fed is not really limited to the two solutions offered a poor man: Wage-labor and Welfare.

i’m going to call my trade “Widget repair,” because it has not yet been discovered by the regulators, and i don’t want to help them. Because the government and the public (other than the direct consumer) are not really conscious of the existence of my field, i can simply say “i’ll fix this widget for $90.00,” and the consumer can simply say, “Ok!”. Notice the step that is left out: In a regulated industry, before either of those things can happen, another man appears and says to the repairman, “I’ll allow you to fix that widget over there for $12,500.00-$1,000,000.00. Oh and if you try it without paying, I’ll seize your business.”

i honestly have a horrible time trying to be sympathetic to those who support licensing of innocent activities, and the best i can say for these people is that they do not see the real face of what they support. Occupational licensing is a government program of explicit monopoly and privilege, of setting up some specific firms to have a great advantage over the consumer, and of excluding all competitors and potential competitors by force. It is the program by which our tax dollars go to the work of stopping needed work from being done, and stopping people from leaving welfare or poor wages. It is the sending out of agents of the state to block an excellent exit from poverty, in order that somebody down at the chamber of commerce may receive above-market returns. It is hard to choke back the hatred i feel for the man whose job it is to find poor men trying to improve their lot through work, and stop them. And i am subject to this same man; should he ever notice my existence, he can destroy my livelihood as surely as he has prevented the formation of a thousand small businesses and the support of a thousand other families. He probably has a little brass plaque in his office, “Commemorating one thousand useful works destroyed or prevented!” And then the motto of the department, “Doing our part to stop work getting done.” So it’s for the best i don’t do anything here to attract his notice, in case he is one of my three readers.

The fact is that if work is useful and positive as part of a large firm’s operation, it is equally useful and positive as the whole of a smaller firm’s operation. If the garment industry needs X million buttons produced, there is nothing preferable about some giant firm having a button-producing department compared to purchasing their buttons from a smaller producer whose whole business is buttons.. Yet if a garment-maker’s license is a million dollars and is required by law for both functions, the separation of production is heavily penalized, as licensing the two firms consumes an extra million dollars. The formation of a separate button-manufacturing concern is suppressed even where this is the more efficient option. Similarly, where an activity consumes labor and requires a license, the license requirement is a force against the independence of the laborers, a subsidy to employers who would otherwise have to negotiate with potential competitors.

There’s a very old teaching, called “The Iron Law of Wages,” which holds that the minimum workable wage is equal to bare subsistence, and that wages will have a tendency to fall to this level because of competition among workers. In other words that the least you can possibly pay a man to keep working is enough to keep him alive; but that there is no economic force to prevent you from paying him exactly that little: He must work to survive, he will be forced by hunger to accept any wage you choose to offer, so long as it offers him mere survival.

David Ricardo refuted this very directly by pointing out that the minimum wage that a man will accept is also affected by available alternatives; even if all employers are in a conspiracy to lower wages to exactly subsistence level, they cannot induce any worker to come into their factories and work if that worker has open to him some other class of opportunity, which will yield superior returns. In Ricardo’s work, he talks about the “marginal productivity of the nearest rent-free land,” as this economic minimum wage. He’s referring to a bit of a specific case there, roughly that in the place and time where he was writing, a worker who didn’t like a wage could simply head off to an undeveloped area and scratch a living out through traditional agriculture, and as a consequence, the lowest wage an employer could offer with any hope of inducing the worker to come work for him had to exceed what the worker could make on his own. We might compare it today to employers trying to get people to come work for them for wages less than the returns available from gathering recyclables and turning them in, or simply from begging. These options are pretty awful, but they exceed starvation substantially, and no employer could ever hope to convince a man to put in a hard day’s work for less than these small returns.

So what if, in David Ricardo’s time, it became a government program to simply find the “nearest rent-free land” to any center of employment, and start fencing it off or guarding it against agriculture? What if it were made a deliberate program to allow the skills involved in traditional agriculture to go extinct? What if seed were regulated so as to prevent anyone but an established firm from being able to plant a new field? Besides the direct tyranny of this, the effect would be to drive down the lower end of the wage scale, as potential employees were deprived of a competitive option, and thrown ever more fully into reliance on wage-labor for their survival. In our society self-employment serves as a similar upward influence on wages, and a similar alternative option for workers. The implication should be obvious; occupational licensing is the fencing off of alternatives for the working class, and as such puts downward pressure on wages and working conditions. It is obviously an evil act to take away a man’s cab, because he does not have a medallion. And we do not have to look very far to see the evil act’s evil consequence, in the unemployment of the man and the increase in the advantage of every employer over every potential employee. And of course, after these injustices have been imposed, the government rides in and insists that the statutory minimum wage was necessary all along.

The above is roughly the case i had in my mind for self-employment or independent commerce before The Affordable Care Act came in. i’ve written before about the effect that act had on my take-home wages, and it was atrocious. i already considered my job a poor value proposition, and a 23% reduction in wages in exchange for a negligible increase in health coverage worsened it easily enough to drive me out. But what could i do?

What i chose to do was treat my managers as middlemen, and cut them out, for a narrow set of the activities of the firm which would not expose me to regulatory issues. i simply began to perform the same work i had previously performed for a wage, for profit instead. This has had some interesting effects, and i have learned a lot about myself in the process, and about wage-labor in general. i am happier setting my own schedule, and i am more productive knowing that i only generate income through real work outputs, not through “milking” or “oh well we tried.” And i have adopted a motto that has transformed labor for me: Ask enough payment that you’re happy to do it. That little concept actually is sufficient to ensure that any work you do, you are happy with. Now of course some work goes undone; some clients want me to take on absurd risks or bear pretty extreme hardships, and i don’t tell them i won’t do it, i instead imagine how many thousands would make that seem like a good deal to me, and make that my bid. If repairing a widget in the sweltering heat, with no tools and no breaks, balanced on a rickety ladder surrounded by rattlesnakes, will put my child through college, i’m the man for that repair. But if it won’t provide me that compensation, but instead yields the kind of compensation i could get for doing a safe job in an air-conditioned office, i’m not refusing your work, you’re refusing my bid. This is an option that was never open to me as an employee, and it enables the throttling of workload according to hunger for pay, and finally, definitely, secures satisfaction with my compensation. i cannot overstate the magnitude of the change this has effected in my own happiness.

There is also the matter of hierarchy, which i admit was more of a problem for me as an employee than it should have been. But micromanagement has vanished from my life, and that’s really an exceptional piece of good fortune, whether my contempt for bosses was excessive or no. Obviously the way this has happened is mostly through the exercise of my motto: i am not happy to be micromanaged…for less than $1,200.00/hour, but if you cough up that rate, you can treat me like an employee all you want. Too expensive for you? Well i guess that settles that. Even commercial customers don’t like micromanaging that much; they’re much more willing to pay for just the repair at $90.00-$400.00 than pay what it takes to induce me to act subservient. Thus, i specialize in doing the most valuable part of my old job, by specializing in doing the most profitable part, that is, the part of greatest value to the consumer. And thus i avoid the parts of my old job i most hated, because nobody really wants to pay me to get up at 6:00 AM, listen to condescending “training”, fill out forms, chase progress, or engage in any of the irritating little activities so beloved by middle managers. They love these things and employees hate them, but the employees’ time is already paid for. When i’m not an employee, but an outside expert, the same managers who would waste their whole day wasting my whole day suddenly care only about getting results. Whatever their impulses to direct and control, cost-consciousness takes over, and they treat me like a human being. That is the victory of self-employment. And the more thoroughly it becomes clear to me that through all its disadvantages, this sort of independent commerce shines a ray of hope for escape from both lower-class desperation and middle-class despair, the more clear it also becomes that the man from the licensing board who extinguishes that ray of hope is an agent of evil.

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One thought on “Reflections on my first year as a small firm

  1. Yea, Sam!

    Several times in the reading of this, I burst into applause, right here in my living room with only Espie to wonder what all the fuss was about.

    Excellent points here, especially well argued after you hit your stride in when describing your personal experience. (Applause, applause. applause.) One may argue theory until the cows come home, as they say, but your personal experiences and your conclusions because of them are so honestly and clearly expressed as to be above quibbling. Excellent.

    However: Could you ever be persuaded to become (shudder!) an employer??? Someone needing a job, hat in hand??? hmmmm……. . I look forward to getting back to your two preceding posts ASAP… They’ve tantalized me, but couldn’t pull me away from the focus of my energies…. (More about that later, if you want to know…)

    Love you so much, Sam~~~ God bless you always~~~ Grammy

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