In financial accounting, an asset is any resource owned by the business. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. — Wikipedia
Investors purchase assets in the hope of profiting from their investments. Investors can purchase assets directly and collect the profits generated by the assets. Investors can purchase monetary assets and get a return as though the monetary assets produced a return. Most investors invest in Monetary Assets.
Conventional monetary assets are indirect assets or derivatives. That is, the monetary asset derives from a real asset. Rather than the real asset generating returns, the monetary asset itself is structured to generate a profit. Profits appear in various ways, including interest, dividends or capital gains. When money itself generates a return or profit, it becomes a tradeable commodity and a way of investing. The financial system establishes the value of monetary assets and ensures their value reflects the value of the underlying real assets from which monetary assets derive their value. Doing this is difficult and introduces risk as there is no direct and continuing link between the monetary asset and the real asset from which it is derived. It is an expensive system to operate.
Prepayments are a new, monetary asset where the profits are derived from the real economic asset that produces the return. The profit from a prepayment only occurs when the asset produces economic value. Thus, the monetary prepayment asset is not a derivation of the asset but is a derivative of the asset's output value. It means prepayments do not generate returns. Instead, the real asset generates a return to be passed through to the investor.
Prepayments are well known and occur frequently. Purchase off the plan and get a discount. Pay for a year’s subscription and get a lower price. Accounting rules for prepayments are the same as for any pre-purchase of goods or services. Prepayment monetary assets are a transferable right to pay for the output from a specified set of assets. Prepayments are a specification of what is expected to happen. If the actual future is different than expected, prepayments can incrementally adjust to reflect the new reality.
Prepayments cost less to operate than monetary derivatives.
Properties
The prepayment has a face value, a discount value and a length of time over which it is assumed to operate. The discount is the value of the discount received when purchasing the output of an asset. The face value represents the claim that the prepayment holder has over the real asset. The asset is collectively owned by all the parties who purchase and use the output from the asset. The rules of creating discounts and the value of claims are defined by the collective of prepayment and regular payment buyers.
A prepayment monetary asset has no value outside the collective and can only be sold to another entity inside the collective. The discount value is realised when a consumer uses a prepayment to pay for the output of the real asset. The asset can be sold to external entities and distributed to members of the collective as prepayments.
The collective can purchase assets, and the seller can receive prepayments as payment for the assets rather than cash.
Constraints
Using prepayments does not increase the amount of money in circulation. Prepayment monetary assets do not give a return to an investor. It is the purchase of goods and services at a discount that gives a return to investors.
These rules reduce the cost of operating a prepayment system compared to other monetary assets like loans or equity. Prepayments can't be repaid without output from the real asset being generated and sold. This constraint simplifies the distribution of any surplus money generated by the assets of the collective.
The entities who share the prepayment asset have an incentive to reduce operating the real asset cost by increasing efficiencies and cost savings. This contrasts with other monetary assets that generate more money by increasing the prices of both the output of assets and the assets themselves.
Prepayments allow the inclusion of other constraints. For example, a prepayment collective for electricity generation may decide to only invest in renewable energy. A prepayment collective to fund fruit and vegetable production may require environmentally friendly packaging.
Flexibility
Consumers and investors have great flexibility when they pay for goods and services. Typically investors will make a regular payment they can change as needed. They will tend to keep their prepayments as they get a good return on investment. However, they can request to sell, or buy, repayments at any time. They will typically get their money immediately for no fee other than regular bank transfer fees. Consumers have flexibility in payments and will often pay a fixed amount each month rather than settle each bill independently. They will tend to pay more than needed as any extra money paid becomes a prepayment that gives a high return than bank cash deposit accounts.
Scaling, Limits to Growth and Transfer of Funds
Prepayments scale easily. A prepayment collective of consumers and investors can act as a single entity. This single entity can work with other prepayment collectives to make a super collective and so on. That is, prepayments scale fractally rather than hierarchically. Individual entities can move between collectives by buying and selling prepayments. There is little cost in moving, and it makes the transfer between prepayment systems low cost and easy. Moving other assets such as ownership of shares is difficult and uncertain. Moving a loan from one property to another is expensive. With prepayments, it is zero cost.
Prepayments are used to build capital resources. In most systems, there is an initial injection of capital with prepayments followed by a period of payments—the period of money coming in as prepayments are the “gestation” stage of the prepayment organism. The period of payments to repay the prepayments is the “childhood” stage, and once all the initial prepayments are repaid, the organism reaches “adulthood”. During adulthood, the only prepayments are for the maintenance of the organism. It means prepayment systems, like all living systems, recognise they have reached their growth limits and capital moves to other areas. This contrasts with monetary assets that seek monetary growth without end.
A community can use prepayments with any asset. Each asset reaches its natural limit, and the profits move naturally to other asset classes funded with the same currency. This results in the smooth flow of capital between sectors of the economy. It reduces the likelihood of societies being landed with stranded assets.
Equity
Monetary assets formed as derivatives are inequitable. Members of society without monetary assets or assets that they can turn into monetary assets are less able to acquire loans or shares, or other derivatives. When they do acquire them, they almost always pay more for the monetary assets than those who already have assets.
When derivative monetary assets are used to acquire assets, the owners of the monetary assets often take all the profits from the sale of the output of assets and keep ownership of the assets. When prepayments are used to purchase assets, the consumers of output collective acquire assets, and consumers share the profits from the sale of the output.
Prepayments and Governments
Governments have the ability to create money as and when needed. Quantitative easing shows that if the interest rates are low, extra money production does not necessarily lead to inflation. With prepayments, governments can take back control of the monetary system. Instead of creating money with debt, governments can create money as prepayments. Spending money into existence to build or purchase productive assets can replace some taxes with the repayment of the money spent into existence.
For example, if a government issues a prepayment to a cooperative — such as a University — then the government will get back its money plus the value of the discount instead of taxation. The consumers in a University Cooperative are the students. The government pays the money it gives to the cooperative to the students who have to use it at the University. The students do their courses, and they end up with knowledge and no student debt. The government does not have to get back all the money they invest. Just enough to provide a choice in education services. The money created by the government circulates through society, and each time it is used for consumption, a little more is repaid to the government.
A community can use the approach to fund all community infrastructure, including hospitals, roads, defence, police and law enforcement, research, and carbon extraction from the atmosphere. Instead of a market in money deciding where the money is allocated, societies through their governments decide where the money is directed.
Summary
The monetisation of assets with derivatives provides a mechanism to create money used to transfer value within society. The money is distributed through money markets for productive purposes. However, the cost of operating monetisation systems is high, and it is inequitable. Monetisation encourages price increases rather than lowering the costs of production.
Prepayments provide a mechanism for the transfer of assets without the need for monetisation. Governments can spend money into existence, and civil society can spend existing money to create new assets with prepayments. The cost of operating a prepayments system is low and equitable. Prepayments encourage efficient production by reducing the cost of producing the same quantity of goods and services.
