Accumulate Wealth by Buying Goods

Today most capital takes the form of ownership of assets that produce income. Capital earns a return on investment through the profits generated by the assets. The most common form of capital is money, and the most common return on capital is interest or more money.

Consumer capital takes the form of a prepayment of goods and services. It earns a return on investment with discounts on the price of the goods or services. Rather than earning money, it gets a return by saving money.

Consumer capital is available to both investors and buyers. Investors get their return when non-investing buyers purchase goods at the full price. Consumer capital is not the ownership of assets. It is more like a loan and complements other forms of capital. When a buyer purchases goods, part of the money purchases consumer capital for later use — something like frequent flyer points, everyday rewards, or shopper coupons.

The Advantages of Consumer Capital

Capital arises from the profits on the sale of goods or services. Profit is the difference between the cost of producing the goods or services and the price paid for the goods or service. Consumer capital enables the sharing of profit between a seller and buyers.

  • Consumer capital extends the existing payments systems and costs less to administer than ownership or loan capital.
  • Consumer capital prevents capital accumulation in unproductive assets. It achieves this by transferring ownership incrementally with each sale. With ownership, all the capital is transferred in bulk. Transferring in bulk typically halves the capital available in a community for new investment.
  • Consumer capital does not require extra money to give a return, and for a business, that is a direct saving. If consumer capital is used instead of a loan, the saving to the business is the cost of interest.
  • Consumer capital replaces the need for free markets to set the price of goods and services. Instead, buyers and a seller negotiate prices, profit and sharing. Markets still exist, but the market does not set the selling price; instead, it finds the lowest production price. It works well for natural monopoly regulated infrastructure markets where there is a single seller and many buyers.
  • Competition still exists as there are many groups of buyers and buyers can move between groups or start up a new group. Competition is in group membership and group rules where group size gives no extra advantage.

Consumer Capital Example

The following compares consumer capital with bonds to finance water and sewerage for city infrastructure.

Assume the capital cost of water and sewerage for a city is about $10,000 per person or about ten billion for a city of one million. Financing this with interest-bearing bonds at 5% over 40 years is a financial cost of $500 per person per year. Consumer capital removes the cost of interest. Instead of the capital cost of $30,000 per person over 40 years, the cost is $10,000. For both cases, the operational cost is about $250 per person per year and is the same for both bonds and consumer capital.

The difference between the two costs is significant and seems unlikely. However, it is correct, as explained below.

Bond finance rents money to the city. The city may not pay the bonds when due, and the funds may (will) depreciate. The bondholder charges an interest fee to cover the risks and the opportunity costs.

When we finance infrastructure with consumer capital, the consumer takes on the risk of paying more than anticipated in the future. The consumer is also the investor, and it makes no sense to pay the risk to themselves. Not all consumers will prepay for the water, so those that prepay need to get a return on investment. The return is a discount when they use a prepayment.

The returns are continuous, fixed, and adjusted for inflation and the capital transfers continuously to the consumers. This reduces the risk to the buyer investor.

As the consumer covers the risk, the capital embedded in the water system transfers to consumers when they pay for water. In this example, at the end of 40 years, the consumer capital will remain but be held by potential future consumers. The ownership of the asset remains with the water authority.

Emergent Properties

Capital markets are complex systems. When we make changes to the form of capital, it causes emergent properties in the market. Some of the observed and anticipated changes are:

  • Capital earns a return for investors by saving money rather than making more money.
  • Investors receive a direct return from production rather than indirectly by money making more money.
  • Returns on capital are negotiated between buyers and sellers before the sale of goods.
  • Consumers accumulate capital when they purchase goods and services where part of the cost is the cost of capital. (capital moves from sellers to buyers)
  • Every payment transfers consumer capital reducing the accumulation of unproductive capital. The faster capital transfers the more investment is made.
  • Returns on investment are independent of when the return happens. (Money tomorrow is worth the same as money today — but there is a higher return the longer the investment).
  • Returns on investment do not compound unless the returns are realised and reinvested.
  • Investment returns increase with recycling and reuse and building long-lasting assets. (recycled money facilitates the circular economy)
  • When many people want the same thing, they choose the recipient who needs it the most, rather than who can pay the most.
  • Payments, investment, and credit are all handled by one system, reducing costs.
  • Individual consumers have increased agency in the economic system through the accumulation of capital.

Likely Outcomes of Implementing Consumer Capital

It is difficult to overstate the positive changes consumer capital enable.

The main enabler changes capital earnings to saving money instead of capital earnings increasing money. A lot less money is required to produce the same amount of goods and services leading to an efficient economy. The money released will lead to an increase in goods and services but with fewer physical demands on the environment.

Setting fixed returns on investments changes the operation of markets. Instead of price deciding who gets contested goods the value to the purchaser along with lottery systems determines who receives goods. This leads to a flattening of the distribution of wealth and an orderly transfer of wealth from one generation to the next.

The increased agency of consumers will change the political landscape. Consumers holding wealth will need democratic social support structures as individuals on their own have little political influence and the existing hierarchical structures will have less influence.

Further Reading

Prepayments an Efficient form of Capital

Incorporating Capital Markets into a Free Market

Discounted Cash Flow Analysis — a Critique

Community Capital and the Commons

Affordable Tenancies for Gungahlin

The Australian Energy Market

A Prosumer Electricity Market

Elinor Ostrum and Prepower Cooperatives



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Kevin Cox

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