Public Capital is a more efficient way of distributing investment dollars than Private Capital. There are four reasons.
- It costs less to distribute Public Capital.
- More investments happen because Capital moves rapidly, so the same amount of Capital can build more assets.
- Users of assets have a direct voice in deciding investments in the products and services the Capital enables.
- The investments are biased towards reducing ongoing costs.
Capital is the knowledge of how to use assets to produce products sold in markets. Payments for products include sunk costs or capital and marginal costs or operating costs. The seller of products gets paid for the use of the Capital and keeps its value for later use. With Public Capital, the Capital in the price of goods transfers to the buyer for future use. This is possible because knowledge or know-how gets more valuable the more it is used. The failure of the economic system to consistently share the increase in wealth created with knowledge is at the heart of many social and environmental problems.
1. Lower Distribution Costs
Public Capital transfers occur as part of a regular payment. Private Capital has a different market that costs much more to operate than a small addition to payments.
2. Capital Movement
Private Capital moves between entities in blocks. The buyer typically borrows most of the purchase price for a house and has to have a minimum deposit. With Public Capital, the buyer receives Capital each time they make a purchase. It means the Capital from borrowing is available to another borrower.
3. Direct Voice
The community that uses Public Capital own it collectively. Individuals within the community take custody and have individual responsibility, and benefit from the assets they control. It gives the benefits of ownership without the burdens of ownership and leads to lower costs.
4. Invest to Save Money
Public Capital moves from investors to consumers, and consumers are often interested in reducing costs rather than generating income through price inflation. Getting the same goods for less money is one definition of economic efficiency and leads to reduced demand on finite resources and a circular economy.
Paying for Knowledge
The price of all goods and services includes a Capital component. Paying for it does not transfer knowledge, but it can transfer the right to obtain future output at a lower price. Public Capital allows such a transfer and makes for fairer trading. It spreads the value created from knowledge through a community and leaves no one behind.
Reasons to Change
Public Capital outcompetes Private Capital as it reduces the cost of goods and services with a large capital component. There are some situations where Private Capital has advantages, but most communities will benefit from introducing Public Capital, for investment in everyday goods and services.
The change removes the need for most Capital Markets along with their costs and opportunities for market participants to game the system. The cost of changing from Private to Public Capital is small and is a Capital expense and recoverable.
The change makes possible many economic, political and social reform ideas. It fits within Sloane and Snower’s “Rethinking the Theoretical Foundation of Economics”. It allows local communities to take responsibility for their Capital without banding together in closed groups. It drives the economy towards a doughnut economy, making the environment part of the economic system.
Finally, it helps communities become democratic with neighbourhood consensus with goods and services cheaper for all.
