Outcomes of Economic Reform

The article Economic Reform outlines a way to reform economies by modifying the way we transfer the value of long-lasting, productive assets. The change reduces the cost of asset transfer and provides an alternative way to allocate assets where assets are income-producing artefacts or capital. Asset allocation is equitable, transparent and efficient.

The reform preserves the market economy in goods and services. But, it moves an economy from being measured by consumption to an economy with increased emphasis in asset maintenance and production.

The following scenarios illustrate the effect of the change.

Community Wealth Building

In most communities, a person has wealth if they have reserves of money they can call upon to buy goods and services. If they don’t need the reserves, they can rent the money and get back more reserves of cash. It means those who have wealth increase their wealth while those who have no reserves have difficulty growing their wealth. To overcome this problem, governments redistribute wealth by taking some of the reserves (profits) and distribute them to others. Unfortunately, this is difficult and expensive and increasingly hard to achieve when money is easy to move between jurisdictions covered by different governments.

A solution to the problem is to stop renting money and invest money directly in the production of goods and services. Instead of rent, investors get a return with more goods and services. A highly efficient payments system exists. Prepayments for goods and services turn the payments system into a means of investment. We give a return on investment by providing extra goods and services for long-standing prepayments.

The approach gives a return on investment without extra money; it also transfers wealth from investors to buyers. We only use prepayments when investing and investing means procuring assets that generate goods and services. When an investor gets their returns with a discount, they also get their original capital back. This capital value is now with the organisation that supplied the goods and services, and it can transfer the capital to the buyers of goods and services in the form of prepayments. Prepayments for goods and services are only used if an organisation needs investment funds.

The ‘magic’ of prepayments and the approach is widely used in regular commerce. Examples are magazine subscriptions, frequent flyers points, everyday rewards, green stamps, and other ways to encourage repeat sales. Prepayments make rewards transferable and hence saleable. Provided discounts are never traded or sold the approach fits into existing payments systems rules and regulations.

Rooftop Solar, Energy Efficiency, Community Batteries and Pumped Hydro

In Australia, 50% of the cost of electricity is the cost of distribution. Generating electricity close to the point of consumption reduces these costs. Electricity is a capital intensive industry. The cost of producing one kWh is about the same as producing the maximum capacity of the infrastructure to generate, build, deliver and use electricity. If we can reduce the amount of money needed to pay for the infrastructure we can reduce the cost of electricity.

Prepayments save a local community the cost of renting money by consumers of the electricity investing and getting repaid in electricity rather than money. The saving in money means that the community has money available for other investments. Investing the money saved in energy efficiency, community batteries and pumped hydro are all ways to increase the local consumption of local energy. It increases the returns from solar panels.

Local Food Production

The cost of producing food has decreased with mechanisation, and farms that operate like factories. However, the cost of delivering, packaging, selling, marketing and wastage has increased until today, like electricity, these costs are much higher than the cost of production.

Local food production can compete with factory food if the costs of delivery, marketing, finance, packaging, reduced wastage of local food, and production can be reduced. Cooperatives and other groups can work together to fund the infrastructure needed to provide these scalable services to all producer members. The capital funds can come from prepayments for future food deliveries. If investors cannot or do not wish to receive the food, they can sell their prepayments to others.

Using the Approach with other Member Groups

Any group of consumers can use the approach. For example, buyer groups, unions, workers can form themselves into a legal entity or use their existing association to be able to hold assets. They can then use their group buying power to fund the means of production and get a return on assets without taking ownership.

Pricing a scarce resource

Rainwater is a limited resource, but its cost of production is zero. A community can use prepayments to fund the infrastructure for the capital works to deliver a regular supply of water to the community. Every member of the community gets an allocation of water. If they consume less than their allocation, then they receive funds in the form of prepayments. The funds for prepayments come from the payments of consumers who consume more than their allocation. The prepayments collected must be invested in verifiable ways to increase the supply of water or to save water or to retire external debt.

Replacing some taxes with repayment of government loans

Money is created when banks lend it. Governments create money by issuing bonds. Money is destroyed when loans are repaid. Governments try to control the money supply by setting the price of money through the price of government bonds. If there is too much money in the system governments increase the price of money, and if too little then governments decrease the price of money.

The government can increase the money supply by prepaying for goods and services produced as the result of an investment. If a community has decided to build a bridge and to put a toll on the bridge, then the government could prepurchase tolls by creating money and investing it in a toll road company. The toll road company would use the money to build the toll-way and sell tolls to users. The toll company would take their operating costs and return the rest of the money to the government. The government can destroy the money, or they can reuse it for another investment. The government can also replace some taxes it would have collected by getting a discount on the prepayments.

Community members, with savings, receive priority when prepayments are issued. This both gives community members a future income or reduced costs. It will help reduce the need for transfer payments for social services payments.

The government can use the same approach for all infrastructure spending; It can get savings from the general population by allowing companies and individuals to prepay their taxes to invest in order to reduce the cost of free public services. Examples are defence, research and development, education, public health, the police, the courts, and other infrastructure.

Because most people will accumulate prepayments through their payment of goods and services, the amount of money required for transfer payments would rapidly decrease as pensioners with homes can sell their homes while still living in them.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Kevin Cox

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