Buying Assets with Instalments versus Debt

Public Capital has the following features:

  • Public Capital holders have joint ownership of assets.
  • Buyers of products produced by the assets acquire partial ownership.
  • Holders of Public Capital periodically use or sell it to purchase products produced by the assets.
  • Holders of Public Capital acquire the right to discounts on the cost of products produced by the assets. Discounts accumulate by holding Public Capital and Discounts can never be greater than 50%.

Three ways to buy an asset are with debt, instalments or cash. Cash is an immediate transfer and ownership is transferred. Debt requires the purchase of a loan and the rental of money. Instalments mean joint ownership. Public Capital is a way for many entities to have joint ownership and remove the cost of renting money.

An Example

Assume an asset costs $10,000 to purchase, and will last indefinitely with good maintenance. Instead of buying it, we could rent it for $2,000 a year where the cost of maintaining the asset is $1000 a year. The asset earns $3,000 a year. Renting the asset means we will continue to pay $2000 a year with the risk that the owner might decide to rent it or sell it to someone else or increase the cost.

The user decides to buy it, but does not have $10,000. Two ways to buy it are with a loan or instalments. Assume the loan has an interest rate of 5% and the loan is repaid over 20 years. The buyer cost per year is $802 per year. The buyer covers the operating cost of $1000.

Public Capital is an alternative. With Public Capital the owner sells to a cooperative of which the seller and the buyer are members. The owner leaves $10,000 Capital in the cooperative and gets the Capital out as product from the asset with half of the payment as a discount. Assume each year the original owner decides to get $1000 worth of goods for $500 worth of Public Capital. The buyer has custodianship of the asset and pays the Capital over twenty years. The buyer cost per year is $500 plus the $1000 operating cost or $1500.

Public Capital has saved the community $302 a year in interest payments. The seller gets a total of $1000 in value a year instead of $802 and the buyer pays $500 a year instead of $802. The same amount of product is produced but less money exchanges hands increasing Capital productivity. Instalments and joint ownership removes the need to pay interest or participate in a Capital market.

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