Open Capital

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Definition

Open Capital is defined as “a proportional share in an enterprise for an indeterminate time"

‘Enterprise’ is defined as ‘any entity within which two or more individuals create, accumulate or exchange Value". (http://www.moq.org/forum/chriscook/ifnotglobal.html)

A proposal for peer-based market reform by Chris Cook, at http://www.opencapital.net/

"Open Capital is the concept of partnership finance through the sharing of risk and reward. Risk is shared through a guarantee society or clearing union, where trade credit between buyers and sellers is subject to a mutual guarantee. Revenues are shared through co-ownership of a productive asset by the investors and investees."

Description

Chris Cook:

"In my view Money is a Relationship, not an Object, and Credit - or "time to pay" - is implicit in this relationship, which also requires an abstract Value Unit.

Wherever there is a barter network, such as the WIR, or proprietary systems such as Bartercard, where credit is granted bilaterally from seller to buyer, then the result is a monetary system requiring a Value Unit. This is essentially the "Clearing Union" as advocated by Keynes at Bretton Woods.

So while Credit may be Money, created privately by credit institutions/Banks, or publicly by Treasuries, it need not be Money.

Such "Money as Debt" (whether created by Private Banks, Central Banks or Treasuries) is only one of the financial claims that together comprise "Financial Capital".

The other financial claim is "Equity" typically that comprised in shares with Par Value (eg £1.00) in a Joint Stock Limited Liability Company - the "Corporation".

This entity is so engrained in our consciousness that the very distinction between "Public" and "Private" assumes the latter to mean "owned by a Corporation".

But that need not be the case.

There is no reason at all why public assets should not remain in public ownership and rights to the production or use value of these assets sold to investors by "unitising" them through the use of trust or partnership-based vehicles instead of Corporations. Indeed Canada's capital market - as you will know - is now divided between conventional listed shares in Corporations, and listed "units" in gross Corporate revenues through "Income Trusts".

This opens up the possibility of "unitisation" into redeemable units of production/ use value denominated not in "Money as Debt" but in (say) kilowatt hours, or square metre days.

I believe that this technique of "asset-based" financing (based upon ownership as opposed to a "deficit-based" claim over someone else's ownership) opens up new forms of "fungible" "money's worth" with a value in exchange, and that this exchange will take place on a "Clearing Union" platform.


Banks as Guarantors

Credit is a necessary part of the Monetary process, and credit or "time to pay" has no cost in itself. The true economic function of a credit intermediary - aka a Bank - is in fact its implicit guarantee of the borrower's credit.

A Bank's "interest" charge covers - as you accurately analyse - the "interest" it pays to (equal and opposite) depositors, its operating "costs" (in "money's worth" of labour, energy, goods, whatever), and any default costs. It then hopes to make a "Profit" for the benefit of its rentier shareholders.

A Bank's implicit guarantee is backed by regulatory capital set by the Bank of International Settlements in Basel.

The problem has been that Banks have been routinely outsourcing this guarantee:

(a) permanently - through "securitisation";

(b) temporarily - through credit derivatives; and

(c) partially - through credit insurance by "monoline" insurers;

resulting, when mixed into toxic cocktails of structured products, in the current "Credit Crash".


An Alternative Financial System

The solution I advocate, and am working to introduce, comprises two mechanisms, neither of which requires legislation.

Firstly, a mutualised guarantee of bilateral credit. This guarantee would be backed by provisions made by both Buyer and Seller (analogous to Keynes' proposal that payments be made in respect of positive and negative trade balances of "Bancors") of "money's worth" into a "Default Pool".

A Service Provider (ie a bank) would no longer put its proprietary capital at risk, but would manage credit creation (by setting guarantee limits) and also manage defaults, and operate the accounting system of this "Guarantee Society". It would be paid for this service, of course.

Secondly, conventional secured credit would be replaced by investment in land, energy assets, and other productive assets by "unitising" and selling forward the production into redeemable units, and these would be shared proportionally between the financiers and the users of the finance in what I call a "Capital Partnership".

A bank's role here is that of an "Investment Bank", bringing investors together with investments - a "service provider" , again neither creating credit nor putting capital at risk to do so.

In the case of a Guarantee Society, the accounting requirement is for a "Shared Transaction Repository", or database of Accounts Receivable and Accounts Payable: in the case of a Capital Partnership, the requirement is for a "Shared Title Repository".

In neither case is there any "profit" or "loss".

A Guarantee Society is therefore banking without the bank as intermediary, and operating on a "Not for Loss" basis.

Capital Partnerships allow the possibility of direct investment in productive assets, with the possibility of the creation of a "National Equity" consisting of the networked pool of productive assets, and a "National Debt" consisting of the networked pool of mutualised credit."


More Information

See also: http://www.exchange-handbook.co.uk/articles_story.cfm?id=38754

For a debate on the similarities and differences between cooperative capitalism and peer production, see http://blog.p2pfoundation.com/?p=93