A Dummies Guide to Productivity Improvement

Productivity, in economics, the ratio of what is produced to what is required to produce it. — Encyclopaedia Britannica

In economics, money is a measure of production. We measure productivity by totalling the money value of the cost of production and dividing it by the money value of the things produced.

With Capital Financing the cost of Capital is part of the total of the cost of production. Reducing the cost of Capital increases productivity. When we finance with debt, the cost of Capital is the cost of interest. When we finance with shareholdings, the cost of Capital is the cost of dividends and the cost of Capital Gains.

The easiest way to increase economic productivity is to reduce the Cost of Capital. One way to do it is to change the investor returns on Capital from money to providing investor returns by discounts on goods and services. The money value of the cost of production reduces while the total money value of goods produced remains the same. We just charge investors less for some of the goods and services they receive.

The producers of goods and services still own the means of production, but if the owners are also consumers, it is easier to enforce financial rules compliance.

The Cost of Capital in a modern economy is estimated to be close to the total cost of the goods and services sector. The Cost of Capital includes the cost of the Industries of Finance, Insurance, Real Estate, and Government enforcement of financial regulation. The functionality provided by these sectors remains if we remove the Cost of Capital and replace investor returns with discounted goods and services.

A Dummies Guide to Productivity Improvement is to halve the cost of production by removing the Cost of Capital rather than double economic output for the same cost.