A Financial System with Automated Reciprocity

Human society evolved in small groups as we learned to exchange things to benefit both the giver and the receiver. The invention of money allowed the mental task of accounting for giving and receiving to be automated for many tasks and extended to strangers.

The invention of Capital with the ability to invest in creating more Capital allowed humans to scale reciprocity to do more things for more people in larger groups until today, the economy is global. Unfortunately, the distribution of profits from most Capital does not automatically exhibit reciprocity. Societies, through politics, go to extraordinary lengths to bring reciprocity into Capital earnings distribution. It is expensive and easily abused, leading to winners and losers with inevitable conflicts.

The problem arises because we do not share increases in Capital (profits) at the time created. We accumulate Capital; then we share it via taxes and charity. Accumulating Capital means the Capital remains uninvested, taxing is costly, and charity makes it difficult for receivers to show reciprocity.

Creating a form of Capital that allows the exchange of new Capital at its creation automates reciprocity and is straightforward and zero-cost. The exchanges of Capital where the main cost component is Capital and the transactions repeat can all have automatic reciprocity.

Prices of products include the cost of making the product and the cost of Capital. Profits are the difference between the price and the sum of the two costs. Investing turns profit into new Capital. In most financial transactions, the new Capital is not immediately shared as it all goes to investors. Consumer Capital transfers the new Capital at transaction time and automates reciprocity. Automation reduces costs, and this is significant for products with a high cost of Capital and high profits.

An interesting emergent property is that Consumer Capital gets more expensive the more consumers are involved and favours the formation of small local groups of consumer owners of Capital.

Automating reciprocity to share profits reduces the cost of operating a financial system and frees up vast amounts of existing idle Capital for reinvestment. It will increase the productivity of any community or business that adopts it. Working out the distribution of the new Capital is a challenge, but that is easier to do in advance than after the profits already exist and are controlled by investors. A good starting point is to share the new Capital equally between all consumers and all investors.

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Kevin Cox

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