Money, Credit & Investment

A Partnership Approach

Chris CookPartnerships Consulting LLP

What is Money?

• Money = Barter Network + Credit + Value Unit• Barter = Exchange of Value• Credit = Time to Pay allows “Split Barter”

– Transaction 1 – (now) Buyer receives Value receiving Credit

– Transaction 2 – (later) Buyer gives Value settles Credit

• Transactions require a “Value Unit”

What is Value?

• Value can be defined only in relative terms• Value is the “Relativity of Desire”• Value is “Money’s Worth”• Value may be Static or Dynamic

– Capital is Static Value– Money is Dynamic Value, existing only in the

instant of exchange

• Economics is the Physics of Value

Creating Value

• Assets or “Property” produce a stream of Value available for Exchange eg land, power plant, intellectual property

• Individuals’ time = stream of Value as labour or services

• Credit is not Value but a claim over Value• “Asset-based” Finance is Investment• “Deficit-based” Finance is Credit/Debt

Investment - “Asset-Based” Finance

• Ownership through “Property” in assets and their revenue streams

• Legal “wrapper” around assets and revenues – Limited Liability Company– Trust– Limited Liability Partnership -“Open

Corporate”

Companies

– Statutory basis – Companies Acts – Types

• Limited by Guarantee - “Not-For-Profit”• Limited by Shares – “For Profit”

– Private – Public– GM eg IPS, CIC

– Issues• Conflicts – “shareholder value” and CSR• Management – the Principal/Agency problem

Trusts

– Common Law basis– judge made– Examples

• Canadian Income/ Royalty Trusts • Macquarie Bank business model

– Issues• Risk Aversion• Management • Taxation• Legal complexity and cost

Limited Liability Partnerships

• Q. When is a partnership not a partnership?• A. When it’s a UK Limited Liability

Partnership (“LLP”)• Q. What is it if it’s not a partnership?• A. A corporate body: with limited liability:

and………er, that’s it!• Not to be confused with a US LLP• Nearest relation US LLC

Why an “Open” Corporate?

• Open to any “stakeholder” to be a Member, as long as they subscribe to the “Member Agreement”

• A legal “wrapper” – like a “trust”, but without the drawbacks - for any assets or revenues anywhere in the world

• Tax transparent

The “Capital Partnership”

• “Capital User” Member

• “Capital Provider” Investor Member

• Jointly acquire a productive asset

Return on Capital

• “Capital Rental”

• User pays Investor a revenue share in Money (or “Money’s Worth”) for as long as Capital is used

• Rental paid before due date is Investment

• Outcome “Co-ownership”

Return of Capital

• Capital may be returned over time in the form of output (eg energy)

• Capital Provider/ Investor purchases production forward at today’s price

• Capital User gets interest-free loan

Community Partnership

LLP

Investors

Community

Capital Rental

Managers

% %

TrusteeOwnership

Community Partnership

• Trustee Member

• Investor Member

• Developer/ Manager Member

• Occupier Member

Community Land Partnership (“CLP”)

• Land freehold held in trust – like a Community Land Trust

• But no lease, no tenancy and no borrowing to develop and maintain property

• Co-ownership between “Occupier” and “Investor”

CLP Example - £4m Investment

• Community asset - £200k inflation-linked rental• Capital Repayment

– £4m Capital cost, repaid over 50 years– £80k initial Capital repayment = 40% of revenues– so of 40% revenues (instead of £80k) repaid each year

• Capital Rental– 2% initially = £80k or 40% of Revenues– Reduces with Capital: after 25 years = 20% of revenues

• Community retains balance of 20% (increasing)• If Community has a bad year so do Investors

Community Energy Partnership (“CEP”)

• Asset held in trust

• Investors pay now for future energy production

• Developer/Operator commits no capital and shares production, thereby aligning interests

• Community receives interest-free loan from Investors and balance of energy production

CEP – 1 MegaWatt Wind Turbine

Cost £1m = 20k Mw/hrs at £50.00 Mw/hr– 2,500 Mw/hr per year = 50k Mw/hrs over 20 years– ie 40% of production sold to Investors

Community “Co-owner”– sells 40% of production at today’s price for 25 years– allocates 10% of production to Developer/Operator– receives Balance of 50% as energy dividend

Investor “Co-owners”– buy energy at today’s price valid 20 years: beats gold!

Credit - “ Deficit-based” Finance

• Interest-bearing (from Credit Institutions)– “Asset-backed”/ Secured by a claim on assets

(mortgage or “charge”)– unsecured

• Non interest-bearing (“Trade Credit” from suppliers or staff)

Mutual Credit – the “Guarantee Society” or “Clearing Union”

• “Common Bond” -geographic or functional• Sellers

– extend trade credit subject to a Guarantee

• Buyers– have “Guarantee Limit”– pay agreed provision into “Default Fund”

• Service Provider– operates network and sets guarantee limits– receives subscription/service charge from all members

Guarantee Society

Sellers

Buyers Subscription/Service Charge

Manager

$$

PoolTrading andClearing in $and $’s worth

$

Provision

Subscription/Service Charge

$Default Rebate

Repayment$

How it Works• A sells item to B for $1000 - 60 days credit• B pays 1% per month provision into Pool• B pays only $500 on due date• Alternatives

– A gives more time to pay– A accepts barter payment of “$500 worth”– A receives $500 from Pool and either

• Pool gives extension to B, collecting $500 over agreed period• B pays “Debt to Society” in hours at agreed rate; or• Pool writes debt off

– Combination of the above

The Community Pool

• Pool is not “invested” in bank deposits

• Pool invests in future revenues of community owned assets eg future property rentals and/or energy production

• Dividend from pool to community members unable to pay, in fuel poverty etc etc

Conclusion

• Community Assets give rise to streams of Debt-free “Money’s Worth” available for Exchange

• Individuals’ Time constitutes “Money’s Worth” available for Exchange

• Money’s Worth circulates on a Barter Network • A mutual guarantee results in a “Clearing Union”

where “Time to Pay” is interest-free but with shared costs and shared defaults.

Consequences

• Money has no “cost” when issued• Public does not need to borrow to invest• A “National Equity” as well as a National Debt• Community Dividends from “Commons” assets in

Community Ownership• A Society consisting of a Partnership of

Partnerships ie neither Hierarchy nor Anarchy but “Synarchy”