Entrepreneurship 101: The
Malefic Strangers And Their Evil Net
By EDWARD E. AYOUB
Release Date: March 21, 2001
© 2001 Macroknow Inc. All Rights Reserved.
dies nowadays from fatal truths: there are too many antidotes.
Nietzsche, Human, All Too Human (I).*
The Metaphysics of Failure
A business in your neighborhood fails. What and whom do
you blame? Some blame poor management, poor products, poor marketing, or
poor customer service. Others blame the entrepreneur’s recklessness,
ignorance, greed, or undercapitalization. Still others blame the predatory
dog-eat-dog character of the competitive marketplace – corporations
devouring one another, especially during economic downturns.
The truth is that every company ultimately dies. Why?
The metaphysics of failure is simple: Everything that issues from the
perishable is perishable; and everything that has a beginning has an end.1
This is the incontrovertible fate of all human enterprise. According to
this logic, of Gnostic origin, not even the greatest companies can be
The entrepreneur is an optimist. He must be, if he
wants to create wealth. To succeed he must know how to compete,
grow his business, and survive. His dream weaves liberty, independence,
adventure, conquest, and riches. His intention is always clear: The
capitalist rose must bloom.
Unfortunately, the entrepreneur seldom reflects upon
the dark side of business life -- the tribulations and ultimate death of
his enterprise. Why should he? For answers, I consulted the
philosophical-religious sources. These offer the deepest insights into
Deep Insights into Money
All religious texts offer deep insight into money
For example, The Gospel of Thomas mentions this
strange saying attributed to Jesus: "There was a rich man who had
much money. He said, ‘I shall put my money to use so that I may sow,
reap, plant, and fill my storehouse with produce, with the result that I
shall lack nothing.’ Such were his intentions, but that same night he
died. Let him who has ears hear." 2
Ecclesiastes, a book of the Old Testament, sheds light
on the connection between profit and vanity:
"The race is not to the swift, nor the battle to the
strong, neither yet bread to the wise, nor yet riches to men of
understanding, nor yet favour to men of skill"
"Then I looked on all the works that my hands had brought, and
on the labour that I had laboured to do: and, behold, all was
vanity and vexation of spirit, and
there was no profit under the sun . . .
Therefore I went about to cause my heart to despair of all the labour
which I took under the sun"4 [my emphasis].
"There is an evil which I have seen under the sun, and it is
common among men: A man to whom God hath given riches, wealth, and
honour, so that he wanteth nothing for his soul of all that he
God giveth him not power to eat thereof, but a stranger eateth it: this is
vanity, and it is an evil disease"5 [my
Apparently, strength, money, swiftness, understanding,
knowledge, and skills guarantee nothing. The entrepreneur plans,
organizes, works hard, but his success is never certain. Why? Because the
Deity forbids it! The entrepreneur’s search for freedom is nothing but
wicked entanglements in the evil net of the marketplace.
The irony is
tragic. The entrepreneur struggles to
free himself from debt and bondage, only to discover that
"strangers" are devouring his labor, wealth, and honor.
But who are these "strangers"? I will unconceal their identity
for you, but first, allow me a detour.
In Ethics, Aristotle wrote: "[T]hose who
follow illiberal occupations, like . . . moneylenders who make small loans
at a high rate of interest; for all these receive more than is right,
and not from the right source. Their common characteristic is
obviously their sordid avarice . . ."6 [my emphasis].
In The Wealth of Nations, Adam Smith wrote that
landlords "like all other men, love to reap where they never
sowed"7; that industry benefits the rich and powerful8;
that merchants and manufacturers extort legislation in support of
"their own absurd and oppressive monopolies."9 "When the law does not enforce the performance of contracts, it puts
all borrowers nearly upon the same footing with bankrupts or people of
doubtful credit . . . The uncertainty of recovering his money makes the
lender exact the same usurious interest which is usually required from
Joseph Schumpeter was a minister of finance in
Austria and a Harvard professor. In Capitalism, Socialism and Democracy,
he wrote: "The perfectly bureaucratized giant
industrial unit not only ousts the small or medium-sized firm and
'expropriates' its owners, but in the end it also ousts the entrepreneur .
. . "11 [my emphasis].
The "strangers" are thus usurious, avaricious,
oppressive beings. They masquerade as meritorious moneylenders, merchants, manufacturers, landlords,
bureaucrats. They may be strangers to you, if you are a new entrepreneur
or a new
investor, but not to the marketplace -- or to mammon, its deity.
The Boom/Bust Cycle –
What is Hidden from the Masses
During recessions, moneylenders can destabilize small
and midsized firms with ease.
As I discussed in my earlier works12, the chain of
causality of the boom/bust cycle is simple – unfortunetaly, its
motivation is cleverly
concealed from the masses.
There are many species of boom/bust cycles. I will
focus here on two: the first drives the economy or an economic
sector, the other the stock market. The stock market cycle is usually
nested in the economic cycle. All boom/bust cycles have four
phases with the following essential characteristics:
Banks create new bank-money in the
form of new debt. Entrepreneurs and speculators borrow the fictive
money. Entrepreneurs use it to invest in new
facilities and equipment, and to employ people. Speculating
cognoscenti and slyboots use it to prime the stock market. The economy
Entrepreneurs use their assets and employees
to create new products and services -- and new
wealth. Speculators pump money in certain segments of the economy and
in the stock market. The focus of their speculation has included
sovereign loans, leveraged buyouts, real estate, mutual funds, and,
more recently, high-tech. The media talks up the expansion and is
rewarded with advertising budgets. The hype works: Herds of first time
investors join the
speculators, first slowly, then in a frenzy of greed. People pump
billions of dollars into stocks. Market values accelerate upward. The
unsuspecting herds fantasize about wealth and early retirement.
Meanwhile, the cognoscenti activate stealthy plans to bail out from
the market with monstrous capital gains. The bail out initiates a
deceleration in stock market values. Stock values then plummet. The herds
panic. But not the cognoscenti and their bankers. They are too busy switching their focus to the
entrepreneurs’ newly created wealth.
The destruction phase of the business cycle
begins with clockwork precision. Banks stop creating bank-money –
they freeze, reduce, or cut the credit lines of illiquid businesses.
Starved for credit, thousands of firms are destabilized. Non-accrual
loans soar. Thousands of companies file for bankruptcy. A recession
develops. Layoffs multiply. Unemployment soars. The average family
income decreases. Asset values plummet. The property crime rate soars.
Government debts increase.
Harvesting and predation.
Banks and their agents seize or take control of the
newly created wealth from the defaulting debtors. Vultures
coerce then cannibalize failed firms. There is nothing creative in
this process. The citizen’s debt load
deteriorates out of control. Millions of consumers cannot meet their
debt obligations and file for bankruptcy. The number of foreclosures
and evictions increases. Asset seizures multiply. Stressed to the
bonds break. The number of abortions increases. The number of
"heart attacks" increases. The number of suicides increases.
The number of homeless increases. Governments indulge in counter
cyclical activities. They cut taxes -- and, simultaneously, tighten bankruptcy
laws. The gap between the propertyless and the wealthy swells. The
cognoscenti and their bankers digest the new wealth and hoard their
monstrous profits. Then the cycle is repeated again.
The repetition of the boom/bust cycle is nothing but
the metaphysical "eternal return of the same" in Capitalism.
The high priests of speculation and their moneylenders
have manufactured booms and busts for millennia. Their
overinvestments still plague many countries. The calamities from the last overinvestments in commercial real estate
will be supplanted with new ones from overinvestments in dot-coms.
The buzz about the "new economy" and
high-tech is a deception. Progress occurs not because of capitalists and
their moneylenders, but despite the avaricious among them. During
recessions, small technology-rich firms become especially vulnerable to
creditors. Driven by greed, unscrupulous creditors conjure up plans to
destabilize and entangle business owners in order to appropriate their
assets – at a fraction of their value. All properties -- real, tangible
and intangible (intellectual property, trade secrets, trade marks,
patents, copyrights, and R&D tax credits) -- become targets of greed.
The Lesson for the
The entrepreneur must guard against two potential
threats: "bank-induced risks"13 and "creative
The clearest empirical evidence of bank-induced risks
comes from Japan.
More distressing, Japanese statistics for 1979 indicates that 23% of
the liquidations involved yakuza (gangsters).16
Suspension of credit accounted for 91.6% of all
business failures in Japan during the period between 1980 and 1990.
The most damning evidence of creative destruction comes
from the United States and Canada. According to Schumpeter, the duration
of the business cycle is about 9.5 years.17 Bankruptcy
statistics for the most recent 10-year period for which we have data
reveals the extent of the economic and psychic damage.
During the period from 1988 through 1997, the U.S.
suffered 737,548 business failures.18 The number of U.S.
non-business bankruptcy filings was 8,600,376.19 Canada,
for the same period, registered 117,508 business bankruptcies and
559,955 consumer bankruptcies.20 North America has
become an economic war zone.
The historicity of the boom/bust cycle is always the
same. The first-time entrepreneur cannot see around his corner.21
So sly "strangers" hide their traps accordingly -- around his
corner. The assault on the entrepreneur's interests comes
as a startling bolt-from-the-blue strike. And the
perpetrators cover up their plunder with denial, denial, and more denial.
The lesson for the entrepreneur is clear: Before
you write a business plan, before you raise capital, before you
borrow, before you budget a single dollar, find all you can about the
"strangers" – and how they can misappropriate, devour, or
destroy what you want to create.
Caveat emptor is not enough. Replace it with
Nietzsche’s admonition: "The market-place is full of solemn
buffoons . . . They want blood from you in all innocence, their bloodless
souls thirst for blood . . . Flee my friend . . ."22
The Laws of the Marketplace vs. The Laws of Physics
The laws of the marketplace are not like the laws of
physics. For example, Hegel’s two states of being, being-for-self
and being-for-another23 have no analogs in physics.
In physics, electrons cannot dominate other electrons,
deceive them, reduce them to servitude, or sell them. There is no vanity,
lust, avarice, greed, or malice in physics. Physics deals with degrees of
freedom, not with free will (at least not yet).
In the marketplace, a desperate mother can sell her
children. Unscrupulous businessmen can sell contaminated animal feed,
infected animals, or infected meat products (the recent spread of mad
cow disease and foot-and-mouth disease in Europe has successfully
destabilized Europe’s agricultural infrastructure). Clever brokers,
at otherwise meritorious institutions, can manipulate stock prices. A
media giant can peddle a writer’s work on the Internet for money
without compensating the writer. A software monopolist can disable
operating system features to destabilize his competitors, etc.
But legislation, like the laws of physics, has its own
supralaws -- laws that govern laws. The primal supralaw of legislation
is what perpetuates the Darwinistic net advantages of lordship over
bondage. Thus, laws favor: the state over citizens;
big corporations over small firms;
lenders over borrowers, franchisers over
franchisees; landlords over tenants;
producers over consumers; HMOs over
patients; employers over employees, etc.24
The corroborating evidence of bias in the legislation
and in the judicial system is overwhelming. In a study of outcomes of
litigation in the United States, covering the period from 1870 through
1970, Stanton Wheeler et al. found that the net advantage of landlords
over tenants was +19.2%, and of creditors over debtors, +9.4%.25
The authors also found that the net advantage of big business was +6.4%
and that of business proprietors was –5.4%.26
in Canada was much worse. According to Peter McCormick, the net litigation
advantage of big business (banks, insurance companies, and major
corporations) was +21.1%; of small and midsized enterprises, -4.8%; and of
It is not surprising that the probability of ruin of
small firms in North America should be so great.
Defense Measures for
Justice (fairness) requires that people have
"approximately equal power."28 Today, the
chasm in the powers and advantages of transnationals and small firms –
and of universal banks and entrepreneurs -- is beyond the comprehension of
There is a monstrous asymmetry in the advantages,
powers, and jurisdictions of firms. The distribution of power in the
marketplace is flagrantly biased – it favors the rich and powerful,
it favors lenders over borrowers.
Large corporations lobby and buy access to
legislators. They benefit from quantity discounts, economies of scale,
tax credits, tax cuts, political favors, government subsidies, media
coverage, negative option billing rights, police protection, litigation advantages, etc. Small corporations get the
So what can you as entrepreneur do? Here are a few
- Become self-sufficient and autonomous – develop an aversion
- Review the law, including the following Acts:
The Truth in Lending Act; The Equal
Credit Opportunity Act; The Fair Credit
Reporting Act; The Fair Credit Billing Act;
The Fair Debt Collection Practices Act;
The Consumer Leasing Act; The Credit
Repair Organizations Act; The Gramm-Leach-Bliley Act; and
The Home Ownership and Equity Protection Act.
- Become familiar with litigation – its techniques, costs,
duration, and most likely outcomes.
Review the business news headlines for the last recession (use the
Internet or visit your local library). Know and understand the
history of the business cycle – discover its tricks, illusions,
superstitions, and deceit. Know when, how, and why bankers are
likely to freeze, reduce, or call operating loans. Then prepare for
the coming recession.
Understand the practices and procedures of the marketplace.
Minimize your risks. Before signing any agreement, know what
can lurk around your corner.
Organize with like-minded people a political movement to eliminate
the net advantages of lenders over borrowers in the constitution and
in the law.
Most important, prepare a self-defense strategy and a plan for
safeguarding the economic safety, security, and survival of you
To sum, become vigilant, informed, inventive, and
fearless. Have a self-defense plan and a self-defense fund. Protect your
economic interests with political action -- and with shrewd measures,
countermeasures, and counter-countermeasures for combating the "strangers." Otherwise, they will eat your riches and
wealth and defile your honor.
1 See Eugnostos The Blessed
(III,3 and V,1) and The Sophia of Jesus Christ (III,4 and BG 8502,3).
Introduced and translated by Douglas M. Parrott. In The Nag Hammadi
Library. James M. Robinson, general editor. 3rd ed., pp. 224
2 The Gospel of Thomas. Introduced by Helmut Koester.
Translated by Thomas O. Lambdin. Saying no. 63. In The Nag Hammadi
Library. James M. Robinson, general editor. 3rd ed., p. 133.
3 Ecclesiastes 9:11.
4 Ecclesiastes 2:11 and 2:20.
5 Ecclesiastes 6:1-2.
6 Aristotle. The Ethics of Aristotle: The Nicomachean
Ethics. Translated by J.A.K. Thomson, 1953. Revised with Notes and
Appendices by Hugh Tredennick, 1976. Introduction and Bibliography by
Jonathan Barnes, 1976. London, England: Penguin Books Ltd. Book IV: Other
Moral Virtues, at 148.
7 Adam Smith, The Wealth of Nations (1776), edited by
Edwin Cannan, with a Preface by George J. Stigler, 1976. Vol.
1, p. 56.
8 Ibid., Vol. 2, at 161.
9 Ibid., Vol. 2, at 165.
10 Ibid., Vol. 1, at 107.
11 Joseph A. Schumpeter. Capitalism, Socialism and Democracy.
3rd ed. Introduction by Tom Bottomore. Joseph A. Schumpeter, 1942, 1947.
Harper & Row, Publishers, Inc., 1950. George Allen & Unwin
(Publishers) Ltd., 1976. New York, NY: Harper & Row, Publishers, Inc.
(Originally pub. by Harper & Brothers.) See Crumbling Walls, pp.
12 For a comprehensive analysis of the business cycle and
corroborating empirical evidence, see World War III Against The Money
Trust? Toronto, ON: Macroknow, Inc., 1998. See also Edward E. Ayoub, The
Boom/Bust Cycle: Why Thin Cows Eat Up Fat Cows. mindhat
MAGAZINE, December 15, 1999. Toronto, ON: Macroknow, Inc.
13 Edward E. Ayoub. Bank-Induced Risks. Toronto, ON:
Macroknow, Inc., 1998.
14 The notion of "creative destruction" in Capitalism
is due to Schumpeter. See Joseph A. Schumpeter, op. cit., pp. 81-86
(The Process of Creative Destruction).
15 Arthur J. Alexander. Managing Financial Distress in Japan’s
Business World. Japan Economic Institute Report, 25, July 2,
(Business Failures in Japan by Statute and Process, 1980-98; cited
sources: Teikoku Databank, Ltd. and Federation of Bankers’ Associations
of Japan, for "suspension of bank credit.")
16 Makoto Ito and Takao Tanase. Kigyo Tosan no Hori Unyo.
Cited in Frank Packer and Marc Ryser, The Governance of Failure: An
Anatomy of Corporate Bankruptcy in Japan (Working Paper No. 62), New
York, NY: Columbia University, Center on Japanese Economy and Business,
April, 1992, p.25. Cited in Alexander, op. cit.
17 Joseph A. Schumpeter op. cit., pp. 87-106 (Monopolistic
Practices). See, especially, the footnote at p. 94.
18 Economic Report of the President, February 2000. Washington,
DC: U.S. Government Printing Office. Table B-94. Business Formation and
Business Failures, 1955-98. Cited sources: Department of Commerce (Bureau
of Economic Analysis) and the Dun & Bradstreet Corporation.
19 See U.S. Bankruptcy Filings, 1980-2000, ABI World.
Alexandria, VA: American Bankruptcy Institute, 2001,
20 Bankruptcy Statistics for Consumer and Business. Industry
Canada. Office of the Superintendent of Bankruptcy Canada. See
21 In The Gay Science, Nietzsche wrote: "We cannot
see around our own corner." See Martin Heidegger, Nietzsche,
Volume II: The Eternal Recurrence of the Same, translated, with Notes and
an Analysis by David Farrell Krell, pp. 115-120, especially p. 117 (The
Character of "Proof" for the Doctrine of Return).
22 Friedrich Nietzsche. Thus Spoke Zarathustra (1892).
Translated with an Introduction by R.J. Hollingdale, 1961 and 1969.
London, England: Penguin Books Ltd., pp. 78-81.
23 For Hegel's philosophy of lordship and bondage, see
G.W.F. Hegel, Phenomenology of Spirit, 1977, pp. 111-119
(Independence and Dependence of Self-Consciousness: Lordship and Bondage),
and pp. 342-343 (man as a "Thing"; being-in-and-for-self
24 See Howard Zinn. A People's History of the United States,
1492-Present. Howard Zinn, 1980, 1995. New York, NY, HarperCollins
Publishers, Inc., 1995, p. 99.
25 S. Wheeler et al. Do the 'Haves' Come Out Ahead? Winning and
Losing in State Supreme Courts, 1870-1970. Law and Society Review, 21
(3), 1987, pp. 403-445 (U.S. State Supreme Courts decisions, 1970-1970).
(Table 7, p. 428.)
26 Peter McCormick. Canada's Courts. Peter McCormick,
1994. Toronto, ON: James Lorimer & Company Ltd., Publishers, 1994, p.
160. (Table 10.2: Party Capability Analysis -- Net Advantage: U.S. Courts.
Figures calculated from data in S. Wheeler et al. (1987) and D.R. Songer
and R.S. Sheehan (1992).)
27 Ibid., p. 157. (Table 10:1: Success Rates, by Litigant
Category, Reported Provincial Appeal Court Decisions, 1920-1990.)
28 Friedrich Nietzsche. Human, All Too Human (I).
Translated, with an Afterword, by Gary Handwerk. Stanford, CA: Stanford
University Press, 1995. Fragment No. 92, p. 70.