A Circular Economy

The ACT Government is developing a circular economy strategy using the following principles.

  1. Designing out waste and pollution

The complete draft strategy can be read here.

Another principle of a circular economy that can drive the 1,2 and 3 and is scalable to the rest of Australia is

A Circular Economy is one in which natural and human-made assets are preserved within Local Communities.

We can achieve a local circular economy if individual assets are kept and preserved within the suburbs, nature parks, leaseholds, waterways and national parks of Canberra. Humans value and measure assets using the concept of Capital. Hence, if we change our financial system so that Capital is preserved by the communities that benefit from it, it will assist and fund the first three points of a circular economy.

Keeping Assets within a Community that Benefits from Them

Community Capital preserves Capital within the Community that consumes products. Money is conserved, and the systems that use the assets. For human systems to retain value, the resources consumed must be recycled or replaced with an alternative. This imperative drives the development of many technologies.

Community Capital cycles within a community and increases profits by saving costs. A buyer of products from a Community automatically becomes a shareholder in the community and is incentivised to preserve the Community Capital. Buyers and sellers benefit from reduced costs, so the investment decisions favour reduced consumption, including the preservation and regeneration of Nature's Capital.

Equity Capital extracts Capital from local communities and profits from increased consumption. The investment decisions favour mining and exploitation of other communities' natural resources.

Each existing business that switches to Community Capital reduces the consumption of Nature's resources and releases existing Capital to pay for the change.

Examples

  1. The benefit of a solar panel on a house is that it keeps the value of electricity within the local community meaning the community does not have to export money to pay for electricity.

Building a Resilient Economy

Community Capital differs from Equity as it strengthens community connection, whereas Equity Capital makes communities compete on price. However, Community Capital allows communities to compete for productivity, savings and external factors such as reduction in Green House Gas emissions.

Community Capital builds resilience because it creates many small interconnected mutual obligations through shareholdings. An external shock to any in the Community will ripple through the communities until the economic system stabilises.

Communities grow by exchanging a product, initially with high profits. When there is enough product for the community, the profits drop by lowering prices. If the prices keep falling, the buyers for a particular product will decrease. So one way to stop the growth of any product is to set the price so that it makes zero profit and for the consumers who buy the product to direct investment in an alternative to the product. This is how we can rapidly phase out coal and gas.

Price Setting in a Circular Economy

Circular economies have many small communities in which money circulates. For a given product, there will be a circulation of Capital. The algorithm to set the price is:

The small community agrees on the profit to be made. Profit can be zero or negative and is a percentage of the cost of production.

When a payment is made for the product, 50% of the profit goes to investors and 50% purchases Capital in the product and is allocated to the buyer.

Community Capital is the cheapest form of Capital, so communities tend to choose suppliers financed with it. However communities are free to choose other suppliers so competition is maintained and it is difficult for companies, even large ones, with deep pockets to use predatory pricing.

Summary

The mutation of Capital so buyers purchase Capital and products releases a large amount of existing Capital for reinvestment. Importantly it provides a way to value Nature's Capital and the funds to restore it. As it is an efficient form of Capital, the economic system is measured by the well-being of the planet and the species that exist here.

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Kevin Cox

Kevin works on giving individuals control over their online information - particularly their financial information with local communities.