The article Funding the Commons outlined how a community could fund infrastructure. This article gives an example and shows how selling the ACT Light Rail Commons to consumers will reduce the cost of public transport by increasing the velocity of existing money.
First, the government goes to the Reserve Bank and the Federal Government and proposes that the Bank allow the creation of money equal to the cost of building the light rail or removing all debt on the existing light rail. The creation of the money could be arranged through a local bank. The funds must be spent removing any debt, and the ownership of the asset is given to a Company by guarantee, where the ACT government is the guarantor.
While it is suggested that the government inform the Reserve Bank and the Fed government, they can discuss with any bank to increase the money supply with a zero-interest loan to a Commons.
Every time a consumer pays to ride on the tram, all the money they pay goes to purchasing shares from the company. Each year, the owner of shares receives a dividend of 5% more shares or the owner can sell shares to others to pay for a ride. Each year, the owner of shares must sell 10% of their shares to consumers or consumer investors. Periodically, the shares are revalued, and all shareholders get a proportionate number of shares. When sold, the investment equals a 10% annuity for twenty years and is twice the value of a typical superannuation pension.
Holders of shares can sell them at any time to other consumers.
The market for shares is always open, and there is no charge for buying and selling shares.
All shareholders will receive one vote, regardless of the number of shares held. A government representative will be the chairperson of the governing body, and the other six board members will be chosen by lottery.
The payment to ride becomes shares that earn an income, so the consumers have an extra financial incentive to use the Light Rail.
Calculations for the Existing Canberra Light Rail
The numbers used below are estimates and are not correct, but the principles remain the same.
- Cost to retire existing debt — $700 million
- The value of the Light Rail is $1000 million.
- The number of trips per year is 3,300,000
- Charge $30 per trip.
- Shares purchased from the company each year are $100,000,000
- The current cost of operating Light Rail is estimated at $30,000,000 so there is a $70,000,000 profit with sales at $30 each.
- Shareholders must sell 10% each year and receive 5% in new shares. However, if all the sales go through, $50,000,000 must come in as new investments. The operating cost is $30,000,000, so there is $20,000,000 available to maintain and enhance the asset, and the net cost to consumers to use the Light Rails is zero.
Where does the money come from?
Money is only valuable when it buys something. With most infrastructure, the money used to build and buy it stays still and does not move. When it is sold, the funds can be used to purchase something. In this case, they are used to buy rides on light rail.
Circulating the ownership of the Light Rail from previous users to current users circulates money to pay for operations and invest in improving the system.
The approach reduces the money needed in an economic system, increasing productivity.
The cost to a consumer of using the system is $30 for the first ride, but they will get the money back again, plus a return on investment. This means when we build infrastructure for the commons, we can pay to use it by selling it to the next generation of riders.
This can happen because using a Commons removes the money's ability to earn more. The debt has no interest associated with it. There is a return on investment in the form of a share of existing assets. The main difference between the proposed Commons and the current situation is that no money is extracted from the Light Rail System as interest, and there is an increase in the circulation rate of existing “zero-cost” money. Profits go to enhancing and maintaining the assets providing the service.
Solving the Low Economic Productivity of Rich Countries
The Productivity of the Australian Economy is low, as it is with most wealthy countries. The reason is that new money is introduced into the economy through debt, and most new money is used to transfer existing assets, not create new assets. Funding “the commons” solves the problem.
Economic Productivity is the value created from a given amount of money. Today, large quantities of money sit idle in assets that never get sold. Circulating money rather than letting it sit in these assets increases productivity because the funds sitting in shares are continually used to buy and sell shares. As the approach is widely used, more and more production of goods and services is expected to occur for the same amount of money, which means rich countries will become more productive.