Controlling the Financial System

Kevin Cox
4 min readSep 22, 2023


Geoff Davies, in “The Little Green (I’m afraid of) Economics …” describes why the financial system is not fit for purpose and inevitably leads to booms, busts, over-consumption, and the destruction of natural systems.

The reason is that financial systems allow money to create more money with positive feedback loops. Systems with positive feedback loops amplify changes and pull the system from its initial state. They’re unstable and can lead to runaway conditions, ultimately destroying itself. Small disturbances become larger, and the system can result in growth, explosion, erosion, or collapse. Systems with positive feedback loops require negative feedback loops to bring them under control.

The financial system has some negative feedback loops in the form of taxes on profits and capital gains and free and open markets to restrict the size of profits. These negative feedback loops help control the system but have been overwhelmed by the positive feedback loop of investing to create more money.

There is another largely unused, negative feedback loop based on the principle of reciprocity. Today when a profit is made, the buyer that paid for the goods receives the goods but receives nothing for the extra money they contributed to make a profit. All the profit goes to the business owner who produced the goods. The business was paid for the goods and made a profit; otherwise, they would not do it, but the buyer has little idea whether the profit is reasonable. By giving back some of the profit on future transactions at the time of the sale, the seller shows positive reciprocity to the seller.

This immediate feedback loop enhances the operation of free and open markets, is low-cost to implement, easy to verify, and generates profits by producing lower-cost products. Importantly, it reduces the need for other expensive feedback mechanisms, which reduce costs, and increase profits for the same effort. Systems with immediate negative feedback are more efficient and are more likely to remain stable.

Sharing of profits of Bank Loans illustrates the benefits of positive reciprocity by removing the exponential growth in the Banking System. Given enough time, any loan can be repaid. It means Central Banks can control the money supply and ensure inflation fluctuates around zero without adverse economic effects.

Bank Loans with Negative Feedback in Bank Loans

The government licenses banks to create new capital by providing loans to individuals and businesses who pay back the loan plus interest. The interest is part profit and part cost of providing the loan service. The bank receives all the profit from producing the loan.

All the interest, including all the profit, goes to the bank. However, if a bank shares the interest by taking a percentage of the interest off the amount owed, the loan is repaid in less time and hence costs less. The resulting increase in loan productivity is shared between the borrower and the bank. Importantly the bank receives all the interest and then pays back some of the profit.

The change in productivity is surprising.

Figure 1 — Marginal Cost of Creating 10% $10,000 Loan over 10 years

Figure 1 shows the Bank Margins for different levels of Bank sharing. For a 10% loan over 10 years, the cost of existing Bank Loans with 100% of the cost going to the banks means it costs $15,500 to create $10,000 worth of money. If the government created and loaned the money themselves, all the interest could go to the government, and the cost to the community of creating money would be zero. Similarly, loans within a closed local community keep all the money in the community.

Figure 2 — Sharing allows fixed repayments over a shorter time

Figure 2 shows that sharing speeds up loan repayments meaning money moves faster. If the money is invested, it reduces the cost of investment by increasing the velocity of money. Combining sharing with changes in interest rates and requiring loan repayments to be reinvested in the same projects for the same loans provides a government with a lower-cost way to achieve nation-building objectives — like investing to replace fossil fuels with renewable energy.

Sharing Company Profits

Sharing company profits reduces the cost of company finance, and reducing finance costs increases a company's profits. A simple, immediate technique is for all payments to include a purchase of company shares where the company invests the money in the company. If the company does not need any investment money, it can ask existing shareholders to sell some shares to customers as part of their payment.

For example, a real estate cooperative can use this approach to make housing affordable for all its members as it removes the cost of borrowing money to transfer ownership.

A consumer identity provider cooperative that verifies an individual’s identity for businesses can use the approach to give individuals ownership of their identities.

A suburb can use the approach to fund renewable energy in everyone’s dwellings and reduce the cost of electricity.

A buyer’s cooperative of local food can fund the development of systems to deliver locally grown produce.

A finance cooperative can implement local loans within a community.


The existing finance system has many positive feedback components that increase finance costs. These costs can be reduced or eliminated with control feedback at the time of purchase. The emergent properties of fast, control information is to reduce the cost of goods and services without relying on free markets. The approach works well for monopolies and monopsonies and takes the place of free market control of prices.

Governments, through their central banks, can remove inflation from economies and direct funds to areas of the economy where investment is needed while enhancing competition.

Sharing profits distributes more money evenly through society, reducing conflict and costs.




Kevin Cox

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