Efficient Capital

Same amount more efficient movement

When we sell goods and services, the cost is in two parts. The first is the cost of producing the goods or services, and the second is the price of "know-how" or Capital. Capital remains in the business and can be used again without further investment. Distributing the profits from Capital is inefficient as the division of profits occurs in the future, and determining who gets what is complicated.

Regular Capital is expensive because we give a return on Capital with more money. Providing a return of more money allows Capital Markets to operate. They are costly to operate and slow down Capital redistribution by creating large static stores of Capital. We can make it more efficient by giving a return with discounts on products and transferring Capital with product purchases.

The buyer and seller agree to distribute the profits with a discount and transfer Capital with each product sale. The time-dependent discount is Capital because when used, it generates another discount. We call this Public Capital because all buyers accumulate Capital when they buy a product funded by Public Capital and all accumulate it at the same rate.

All holders of Public Capital can have a voice on the business governing board. Consumer voices on the governing board will encourage efficient production because consumers pay for inefficient operations.

Using this approach to raise Capital removes the cost of paying dividends or interest and the cost of a Capital Market. The administrative expenses for time-dependent discounts are low as they are an extension of the regular payments of goods and services.

In modern economies, a high proportion of the cost of goods and services is the Cost of Capital, especially utilities and housing. Public Capital will quickly bring productivity increases to an economy and tend to localise production and reduce supply chains.

Accounting for Profit from Public Capital

Some buyers accumulate Public Capital in a specific asset like a house. Each month the buyer pays the equivalent of rent. The minimum rent may be related to the asset's value, or it may be related to the money they save from using the asset. When the buyer accumulates Public Capital equal to the original asset cost, the minimum rent drops and they cease getting Public Capital.

Suppose the buyers do not acquire a specific asset when buying a service like electricity or water. In that case, they continue to accumulate Public Capital for as long as they purchase the service.

Holders of Public Capital must sell or use a given percentage each month to reduce Public Capital accumulation and increase reinvestment.

The business sets accounting rules and parameters to ensure the Public Capital transferred for a given value of a product is less than the Capital transferred with regular Capital. Hence Public Capital is more productive than ordinary Capital. The productivity gains show up as a lower product cost and more funds for investment.

Cost of Housing

Assume investors want a 7% indexed annuity for thirty years.

Assume the maximum rental a buyer can afford is $15000 per year. The maximum value of the home buyers can purchase $15,000 divided by 3.5% or $428,500.

Investment to Make Housing Sustainable

A sustainable house is one where all the energy consumed is electricity from renewable sources.

Assume the average home spends $5,000 a year on electricity. Assume investors want a 10% indexed annuity for twenty years. The house occupier will pay $2,500 a year for electricity.

The investment available to make the home sustainable is $2,500 divided by 5% or $50,000.

Investment in Public Transport

Assume a city of 400,000 spends $500 a year per citizen to provide public transport, and the operating cost is $250 per citizen. How much investment can the city afford?

The amount of investment income available per year is $250 times 400,000 or $100 Million per year. If the city wanted 5% of the Public Capital to circulate each year, the 100 Million would service investment of $2 Billion. Each year it would generate $100 million in recycled Public Capital.

Alternatively, if the government borrowed the money at 4% repaid over 20 years would result in $2 Billion of static Capital. The government would pay $47 Million each year in interest payments.

Paying to ride on Public Transport, buying land along the route, and paying government rates and taxes will include a Public Capital component.

Summary

Public Capital is an efficient way to invest. The savings increase the rate at which Capital circulates and decrease the products produced. For long-lasting assets, the savings are more than the initial cost of the assets. The approach can work with any ownership structure with appropriate legal agreements and accounting changes. The method can work with any size community and any investment.

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Kevin Cox

Kevin works on giving individuals control over their online information - particularly their financial information with local communities.