Bringing Finance into the 21st Century

Kevin Cox
4 min readApr 9, 2024

The Finance Industry invests money to make more money. The money to invest comes from loans or savings. New money comes via loans, where the government sells banks the right to make government money by issuing loans of new government money. Savings come from surpluses (profits) in previous transactions.

Because of the theoretical success of free markets in allocating money for goods and services, economists have assumed that a free market in money is the best way to allocate money to investors. Unfortunately, a free market in money is impossible because the investors with the most money can always outbid the investors with less or no money. To overcome this, governments tax investor profits and redistribute them to those with less money.

Taxing and redistribution is the main occupation of governments.

Estimates of the cost of the financial services industry vary and often do not include the cost of government in taxing, redistributing, and controlling the money supply. However, it is above 50% of GDP when we include the cost of governance.

Reforming Banking

Banking makes its profits by charging interest on loans. The greater the risk, the higher the interest. Loans with little risk have a lower interest than loans with high risk. However, banks also profit by charging interest even when part of the loan is repaid. It does this by not subtracting interest paid from the loan amount. The profit from this is substantial, and removing it speeds up the transfer of money, which increases banking productivity.

The following graphs show banks can increase loan productivity by sharing their profits and speeding up the repayment of loans so that borrowers are not paying interest on capital they have already paid.

With 100% sharing the cost of a loan drops by 30% with the same profit to lender.
Increasing interest rates and doubling repayments doubles the savings.
Sharing all the future 33% interest on loans with buyers reduces the financial cost of loans to zero.
Spreadsheet that created the above graph.

The default interest distribution for most loans is 100% of interest to the lender. It results in the borrower paying interest on interest and is the attraction of loans for financing investment. It was appropriate in the Middle Ages when there was uncertainty over long periods before a return on investment occurred. It is inappropriate today with instant communications and the ability to quickly calculate returns.

An alternative is to make interest higher but deduct some of the interest from the amount owed after each payment. When 100% is deducted, the interest is kept in circulation, and hence, the financial cost of creating a loan is zero.

In practice, we can vary the interest rates to ensure the lender gets a fair return on their funds and vary the percentage shared to reduce the cost to the buyer. Both these actions speed up the movement of money, increase the productivity of money, and increase the production of goods and services for less cost.

It reduces the accumulation of unnecessary money in assets and bank accounts and spreads money across society. It allows markets to be localised and for many markets for the same goods and services, increasing the effectiveness of free markets as people choose to move to a different market for the same goods and services rather than choosing from suppliers.

Recommendations on Loans

All levels of government should insist on 100% sharing of interest as government loans are no-risk as the Australian government can always repay the national currency loans. To protect the banks, loans owing can be adjusted for CPI inflation, and the interest rate can increase to cover the bank's costs and profits.

Governments can recommend that low-risk loans share more interest and that high-risk loans share less interest, which can adjust as the loans become less risky rather than lowering the interest rate.

This gives the Reserve Bank a method of fine control of the money supply without a blanket change to interest rates.

Examples of Markets where Profits are Shared

Across the world, we can halve the cost of housing without reducing the price by creating permanent home markets.

We can halve the financial costs of long-lasting infrastructure projects like a renewable electricity grid, toll roads, public transport, and hospitals. We can halve all the finance costs associated with creating Capital goods by sharing the profits generated between investors and those who pay for the goods and services.

Cost savings come from moving money quickly, allowing more investment, and spreading the ability to invest across the whole population, which increases investment.



Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income.