Economic systems thinking_23_07_10

Systems Thinking and Finance 3.0 Strathclyde University Chris Cook, Glasgow 23 July 2010

“ You can't solve 21 st Century problems with 20th Century solutions” . Dr Narsi Ghorban

Market 1.0 – was for thousands of years decentralised but disconnected

Money 1.0 was a physical object and market presence also physical

Market 2.0 is centralised but connected

Money 2.0 is a credit object and market presence is through 'for profit' intermediaries

Market 3.0 will be decentralised but connected – a “Peer to Peer” Market

...market presence is network presence - intermediaries become service providers

Money 3.0 – is a relationship defined within an interactive protocol

Money 3.0 – is one of the outcomes of P2P Credit and P2P Investment

Let’s look first at P2P Credit Buyers 03/04/10 Sellers

Sellers give buyers interest-free credit –or “time to pay” Buyers 03/04/10 Credit Value Sellers

Credit is guaranteed by a Guarantee Society of seller and buyer members... Buyers 03/04/10 Pool Guarantee Guarantee Sellers

..with some kind of “common bond”: geographical, functional, or both.... Buyers 03/04/10 Pool Guarantee Guarantee Sellers

Both sellers and buyers pay into a Pool for the use of the Society’s Guarantee Buyers 03/04/10 Pool Guarantee Guarantee Fee Fee Fee Sellers

Buyers settle credit in money, or money’s worth of Value acceptable to Sellers Buyers 03/04/10 Pool Guarantee Guarantee Fee Fee Fee Value Sellers

If buyers default, the Pool pays sellers, and collects from buyers Buyers 03/04/10 Pool Collects Pays Sellers

A service provider sets guarantee limits, handles defaults & manages the system Buyers 03/04/10 Pool Service Provider Services Fee Fee Guarantee Guarantee Fee Sellers

P2P Investment and Unitisation

There are conventionally two types of ownership - Public or Private 03/04/10

There are two conventional investment protocols: Debt and Equity 03/04/10

The statutory Limited Company protocol 03/04/10

....a 19 th Century legal dinosaur... 03/04/10

...is what makes the Private Sector Private 03/04/10

Credit is typically issued by banks and secured by debt protocols.... 03/04/10

...giving two conflicting claims over the same productive asset 03/04/10

But there’s a new furry mammal out there.... 03/04/10

...the 21 st Century UK Limited Liability Partnership (LLP) 03/04/10

A UK LLP is a corporate body with limited liability.... 03/04/10

...and...errrr...that’s it!... 03/04/10

As far as the UK Tax Man is concerned it is a Partnership 03/04/10

It’s an “Open” Corporate where partnership working is possible.... 03/04/10

... even without a written agreement 03/04/10

It enables direct Peer to Peer (P2P) Credit and Investment 03/04/10

Over 60,000 UK LLPs are now in pervasive use for purposes never intended... 03/04/10

...even in the Public Sector, where Glasgow has five municipal LLPs 03/04/10

Capital Partnership – direct Peer to Peer investment in productive assets 03/04/10

Hilton Capital Partnership ( > £1bn) Capital Partnership LLP 10 UK Hotels Gross Revenues Hilton Group Capital User Consortium LLP Capital Provider Bank Property Developer Hotel Specialist % % % % %

Capital Partnership Assets Investors Payment % % Use Managers Users Custodian

Productive assets are held by a Custodian Assets Custodian Ownership

...who safeguards the asset on behalf of the Community Assets Custodian Ownership

Investors put in Financial Capital in money, or money’s worth … Assets Investors Ownership Financial Capital Custodian

Managers provide Human Capital of time, expertise and experience.... Assets Investors Ownership Human Capital Financial Capital Managers Custodian

Users pay for the use of Capital Assets Investors Payment % % Use Managers Users Custodian

Result: Capital Partnership Assets Investors Payment % % Use Managers Users Custodian

Capital Partnership reinvents Equity

Equity Shares - % age shares in revenues or production... 03/04/10

… ..which may be transferred, but never redeemed, since there must always be 100%

Units – Redeemable in production eg Kilo Watt Hours, natural gas

Example: “The Art of Flirting” – a film incorporated as an LLP 31/05/10

The actors received nth’s of the gross revenues... 31/05/10

...I got 5%...and the producer the rest... 31/05/10

...except that we needed lights, cameras, pizza, coffee 31/05/10

Two Capital Partners invested £10k for 20% of revenues 31/05/10

Art of Flirting Partnership Art of Flirting Partnership Financial Capital (Investors) Viewers Custodian % % £ 31/05/10 Human Capital (Actors, Producer, Me)

Everyone was on the same side 31/05/10

Example: Albion Trust...a charity 31/05/10

..which provides affordable office space for social enterprises 31/05/10

...due to demand they bought a disused church next door 31/05/10

...and planned a £4m development 31/05/10

But if they borrow, the rents will be unaffordable 31/05/10

Solution? An Albion Partnership? Albion Partnership Investors Tenants Custodian % % £ 31/05/10 Managers

Capital Partnerships and Guarantee Societies are not Organisations 03/04/10

They do not own anything, do anything, employ anyone, or contract with anyone... 03/04/10

They are simply framework protocols with cross border application

...transcending borders through interactive consensual agreements 03/04/10

...rather than adversarial contracts imposed by national statutes or courts 03/04/10

Partnership protocols require no legislation Master Partnership Financial Capital (Money, IP etc) Users Custodians (National) % % Payment 03/04/10 Human Capital ( Developers, Operators)

There need be no national or international organisations or hierarchies

Money 3.0 is not an Object : it is a Relationship

My vision for Money 3.0 is of a networked Clearing Union....

....where 'Money's Worth' of value is exchanged on credit terms

....by reference to a Value Standard

I assume three fundamental bases of Value..... Location

Units redeemable in payment for location rental will be acceptable geographically

Units redeemable in payment for energy will be acceptable generally

Credit Units issued by individuals and enterprises are backed by knowledge

Transactions will be priced by reference to an energy standard or Unit of measure

Communities with a common bond constitute Guarantee Societies

The agreement defines the Community 03/04/10

Money 3.0 - the Community is the Currency

Economic systems thinking_23_07_10

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