The Shoulder Is A Maintenance Cost.

To My Partners,

The Remote Access Security Act is the best piece of legislation I have seen this session. I need it to fail. Reza Moradinezhad wrote in National Review this week that Congress risks helping China win the AI race if RASA’s cloud-access controls chill the growth of the trusted foreign customer, the German manufacturer, the British software firm, the Singaporean startup building on American compute and reinforcing the network effects that keep the sector dominant. He’s worried about Huawei and Alibaba and DeepSeek. He’s not worried about Grover, and neither are you, and that is the margin.

Grover is a shoulder on the heavy-electrical line of the transformer plant I own through two shells outside Erwin, Tennessee. He’s been winding the 1,200-pound copper coils that go into the 50-megawatt transformers feeding AI data centers for 41 months. His left shoulder tore at month 14. He had surgery on a payment plan I structured through the plant clinic. He came back and wound 1,847 more coils before the right one went. The replacement starts on Monday. He’s 22 and hasn’t thrown a baseball overhead. The hydraulic lift-assist that would have kept the shoulder intact costs $14 per transformer in depreciation. I haven’t bought it. The prompt you typed this morning about the weather or the route or the recipe was routed through a transformer his shoulder built. The transformer’s on my balance sheet. Your prompt’s on my balance sheet. The shoulder isn’t. The Lord provides the shoulder. I provide the invoice.

Now let me show you the arithmetic, because the arithmetic is where I keep my ledger.

The transformer carries 50 megawatts. A single AI training run, the model that will answer your prompts for the next 3 years, draws about 25 megawatts. The transformer will carry 2 training runs in its first year. The marginal labor cost per training run, amortized across the shoulders that built the transformer: $15. The marginal cost of the lift-assist that would have kept Grover’s shoulder intact: $14 per transformer, or $7 per training run. I kept the $7. The shoulder is gone. The training run begins on schedule.

Read this once.

The shoulder is gone, and the training run begins on schedule.

The shoulder is a maintenance cost. By which I mean a man whose rotator cuff tore at month 14, and I prefer the polite phrase because the honest version would make my dinner guests set down their forks. The replacement is a coil-winder from the next county over who’s 22 and hasn’t thrown a baseball overhead. His replacement cost, in the time it takes me to sign a staffing-agency invoice, is approximately the price of the staffing-agency invoice. I haven’t priced the shoulder above the invoice. I haven’t priced the shoulder at all. The shoulder isn’t on my balance sheet. The transformer’s on my balance sheet. The training run’s on my balance sheet. Your prompt’s on my balance sheet. Grover’s shoulder is not. I want to be clear about that.

But the shoulder is only one end of the supply chain I am asking you to underwrite. The other end sits in a secure-destruction operation I own in the Missouri Ozarks, where a man named Corbin, a body on my shredder floor, feeds the burned-out GPU arrays into an industrial mill. The mill is the second LLC. The first LLC sells the destruction certificates the foreign customers require before they log into the replacement cluster. The dust is breathed in the second. The margin lives in the distance between the two.

Corbin feeds the spent circuit boards into the mill for 10 hours a day. The boards were $40,000 each when they were alive. The machine that summarized your morning meetings ran on one of them for 18 months until it burned out, and then it was shipped to me, and Corbin fed it into the mill. The mill tears the boards into half-inch fragments. The fragments release an aerosol of lead and cadmium. The metals soldered and layered onto the board are now in the air 3 feet from the feed hopper where Corbin stands. The negative-pressure hood that would pull the dust from his breathing zone costs $340.

I kept the $340.

That is the compliance cost Moradinezhad did not price. He’s worried about paperwork and legal exposure and whether multinational engineering teams might feel uncertain logging into American cloud services. I employ the man who produces the document that makes them comfortable. The document is the destruction certificate. The production cost is Corbin’s lungs. The $340 I did not spend is the reason the trusted-node line returned 11.2% last quarter.

Let me widen the frame.

Moradinezhad calls the arrangement a “trusted allied node.” It’s a handsome phrase. It sounds like a treaty between democracies. It isn’t a treaty. It’s a jurisdiction where the Commerce Department’s paperwork ends and my discretion begins. The 19th-century planter called it the company town. The 20th-century industrialist called it the free-trade zone. I call it the trusted node. The name changes every 50 years. The math has not changed once. The trusted node is the place where the jurisdiction that wrote the compliance requirement stops, and the jurisdiction where I employ the body that meets it begins.

“Your male and female slaves are to come from the nations around you; from them you may buy slaves. You may also buy some of the temporary residents living among you and members of their clans born in your country, and they will become your property.” (Leviticus 25:44-46, NIV)

The nations around you. The temporary residents. The property. The text did not mention a negative-pressure hood. It did not mention a hydraulic lift-assist. It did not need to. 3,000 years of procurement geography, and the only variable that has changed is the commodity.

Cato was clearer than I am. He wrote in De Agri Cultura §2.7 that a master, inspecting his farm, should sell what is superfluous: “vendat… servum senem, servum morbosum, et siquid aliut supersit, vendat.” Sell the worn-out oxen, the blemished cattle, the blemished sheep, the wool, the hides, the old wagon, the old iron tools, the old slave, the sickly slave, and whatever else is superfluous. The old slave and the sickly slave appear in the same list as the worn-out ox and the old wagon. Cato was pricing a different kind of body in a different kind of farm, but the arithmetic is the arithmetic. I keep the arithmetic. I have kept it across 2,000 years and 3 industrial revolutions and a digital revolution, and I will keep it across the AI revolution you are asking me to build.

The compliance pathway Moradinezhad wants is not a regulatory question. It is a question about who submits to whom. Foreign AI customers, the manufacturer in Germany, the software firm in the United Kingdom, the startup in Singapore, are not customers. They are tenants of the compute I own, the transformers Grover winds, the substations my other bodies maintain, the cooling water my other bodies pump, and the model weights I license at a rate that includes the cost of their submission. They submit because the alternative is Huawei, Alibaba, Tencent, or DeepSeek, and Huawei is on the export-control list and Alibaba’s founder is on the export-control list and the alternative is not an alternative at all. It is a door I have closed. They knock on the one I have left open. They submit on the terms I have set.

The labeled data is the same arithmetic as the wound shoulder, and the labeling body earns the same fraction of a cent per token, and I have not been asked about her either. She is in the Philippines, or in Kenya, or in southern West Virginia. The arithmetic that built the cotton gin built the GPU cluster. The arithmetic that built the GPU cluster is building the AI empire. The empire runs on the same shoulder as the cotton gin. Grover is 41 months in. The replacement is 22. Corbin’s hands lock by the fourth hour. I’ve assigned both cases to two sections of the seminar. Both arrived at the same conclusion I did: the $340 and the $14 are sunk costs, and sunk costs do not appear in the quarterly.

The destruction certificates are current. The foreign customers have renewed through Q3. The trusted-node line returned 11.2% last quarter. The transformers Grover wound are in the ground. The substations are energized. The data centers are commissioning. The training runs are beginning. I haven’t looked at the shoulder. I do not intend to. Providence has been generous this quarter. The partners who want to increase their allocation should contact the front office by Friday.

Sterling A. Varice holds the Hayek-Friedman Chair and serves as Dean of Instruction at Warden University’s College of Business and Economics in Richmond, Virginia. He is the author of three textbooks: Divine Mandates for Labor Utilization, Social Obligations for Profit Maximization, and Calibrated Deprivation: A Manager’s Guide to Employee Motivation.