Prepayments — A Money Commons

Prepayments are a funding method that turns regular money into local money Commons. A community can use local money to turn other assets into Commons. Other emergent properties and functions of the operation of Commons can include trust in others, the fair distribution of wealth, local community resilience to external shocks, individual responsibility for assets that benefit the individual, a substantially lower cost local economy and community control over the local environment.

Prepayments

When a person uses prepayments to provide funds to a supplier, they pay less for the goods and service at the delivery time. An example is the purchase of a magazine subscription. The cost of each issue of a magazine is less with prepayments than the cost of an issue paid for at the time of issue.

Assume that a monthly magazine costs $6 if purchased at the time of issue. Assume the magazine costs $36 or $3 an issue with a prepaid subscription for one year of monthly deliveries.

The cost of 12 magazines is $72 if purchased at the time of delivery or $36 if purchased as a subscription. The subscription is an investment of $36 to give $72 value in magazines.

With prepayments, further rules might be — if a magazine is not available in one month, the subscription owner gets a refund of the full price of $6, or the subscription is extended for two more issues next year. If two magazines are purchased in one month, then the number of magazines is reduced to 11 months. A subscriber can sell their subscription to another party via the magazine producer.

Traditional investing is an alternative for the magazine producer. The producer borrows $36 and pays interest on the $36. Using prepayments saves the interest cost.

This applies to any investment. Prepayments will always benefit the supplier, and providing the supplier can deliver the goods will benefit the consumer.

Prepayment agreements are a different way for a supplier to obtain investment funds. Instead of going to a money market for funds, the supplier goes to its customers and raises funds with prepayments. Doing this saves the costs of the money market and gives customers a stake in the magazine's success.

Why aren’t prepayments the way most people invest?

The main reason investors have not embraced prepayments is that the financial system has “enclosed” money. Those who prefer to continue owning it retains ownership and collect rent when others use it. This is in contrast to real investors who use the money to create new value and get a return on investment from the production of goods and services.

Money arose as a free commons available to all in a community using rules set by the community. The financial system turns money into a commodity that increases in value over time. Such money products are no longer commons because individuals and not the community own them. Entities with ownership set the rules on its use. One typical rule is the renting of money where the owner of the money sets the rent, and the renter pays for the use of the money. Another rule is that non-repayment forfeits other assets, including the borrower themselves.

Renting money is usury, and in some societies, usury was, and still is, seen as a sin and unethical. However, money is a profitable product to rent as money costs nothing to produce, yet others pay to use it. The sin is compounded because most new money is created with loans. Only those with money or monetisable assets are permitted to obtain loans.

Prepayments with discounts solve the problem of giving those who have money a return on using the money without turning money into a commodity and enabling usury with its anti-social emergent properties.

Using Prepayments as an alternative to the Financial System

Pre Power Co-operatives use prepayments to invest in the production of renewable electricity. Buyers of prepayments get a refund of money if they do not consume the electricity they are entitled to. The refund is cash to the value of the electricity. An extra rule says that if the Co-operative needs further investment, the refund is reinvested in Pre Power. In Canberra, Pre Power will reduce the cost of renewable energy by 30% and give investors a twenty-year 10% prepayment annuity.

Prepayments need less regular money to produce the same amount of goods and services than a production system funded with loans or equity. Using less money to produce the same amount of goods and services is defined as increasing productivity. It is this fact that gives prepayments a cost-competitive edge over the financial system. The financial system rents money through the use of derivatives. Examples are interest, dividends, capital gains and asset inflation. Using prepayments removes the need for communities to rent money and, with its removal, reduces the cost of investment. Payments systems also cost a lot less to operate than financial markets.

Emergent Properties of Prepayments

Prepayments are a zero cost monetary asset. Its use in a system results in many emergent properties in those systems. This article explores some of these properties.