Like all money inventions, Community Capital is an algorithm with a set of rules that participants follow. It is a dynamic feedback algorithm as the participants change their actions, within and sometimes outside the rules as the environment changes. The algorithm's rules evolve to match the changing environment and the participant's intentions.
The Community Capital algorithm is important because it addresses the Equity and Loan Capital issues of
- dysfunctional Capital distribution,
- stationary Capital,
- the expense of moving Capital from one entity to another,
- and the unnecessary consumption of physical resources.
Community Capital increases the value obtained from a given set of resources and spreads Capital (wealth) more evenly across society.
Intentions, Rules and Definitions
Intentions
Investors receive a return on investment.
Buyers receive products for a lower cost than it would cost them to produce or obtain from another seller.
Investors can sell to other investors.
There are no payments without providing something of value.
Buyers receive the new Community Capital created with their payment.
Definitions
The price of a product has three parts.
- The marginal cost.
- Capital — a fixed cost that can be sold again.
- The profit.
Rules
- To set the price, fix the profit and Capital as a percentage of the price so that the price varies by the marginal cost.
- At the time of each sale, the seller keeps the profit and marginal cost.
- The Capital transfers to the buyer as either a discount or Community Capital.
- Group the buyers by the marginal cost. The group of buyers have representation on the governing board of the business.
- Capital goes into the business by investors pre-buying products and receiving a fixed return on investment depending on how long the Capital resides in the business.
- Treat Equity Holders as holders of Community Capital, and their share of the profits becomes Community Capital.
- Allow buyers to vary their payment amount according to their ability to pay. The less they pay, the less wealth they accumulate.
- When buyers have completed a purchase, their payments drop to a holding charge.
Algorithm Outcomes
We will only see the effects after the system operates but simple modelling implies:
- As buyers become investors, they will look to keep the marginal costs low and will favour cost-reducing investments.
- Community Capital increases when the marginal cost drops. Price increases give higher returns to buyers, not investors.
- Community Capital transfers at least twice the Equity Capital rate, meaning twice as much investment for the same amount of Capital.
- As the market becomes saturated, the prices will drop to the marginal cost plus the return on Capital.
- The cost of moving Capital disappears, saving the community the cost of interest, dividends and Capital gains.
- Government's need for taxes to redistribute income will drop.
- Government Capital costs will drop substantially.
- Government income from land sales will increase.
- Government existing fixed assets like dams, roads, and other infrastructure can be incrementally turned into Capital.
- Capital moves from investors to local consumers providing a seamless transfer of wealth from one generation to the next.
- GDP will drop for the same amount of production.
Algorithm Differences
- There are no payments for ownership with Community Capital. (no rentier payments).
- Most ownership transfers with Community Capital happen at the time of payment for goods and services.
- Ownership transfers between members are at the current Community Capital value.
- Community Capital profits come from reductions in marginal costs.
Costs to Change
The cost of changing from Equity Capital to Community Capital is low because the changes are in the rules, regulations and governance of moving money. Community Capital finances the investment, so the return on investment will likely be within months.
A given amount of Community Capital will always produce more value than Equity or Loan Capital.
Capital is money created as a profit from the sale of a product.
Value is the cost of a product.
- Equity Capital and Loan Capital is Capital supplied where the supplier requires more Capital back.
- Community Capital is Capital supplied where the supplier requires more product value for the same amount of Capital.
Community Capital must always create more value because Equity and Loan Capital require additional Capital to come from outside the system whereas Community Capital gives a profit by giving more value for the same amount of Capital.
Community Capital will always cost less to transfer than Equity or Loan Capital.
Community Capital is transferred from an investor to a buyer at the time of payment.
Equity and Loan Capital are transferred from an investor to another party as a separate payment with a cost.
Community Capital will always be cheaper to transfer because it happens simultaneously as payments without changing the existing banking system. Equity and Loans require a different market separate from the payments.
