General Equilibrium with Regenerative Capital
How regenerative capital changes the fundamental equations of economic equilibrium—and why this matters for system-wide stability.
The 60-Second Version
Standard economics assumes capital extracts value. Every model of general equilibrium—how markets reach stability—builds in this assumption. Interest rates, profit requirements, and return expectations are the foundations.
But what happens when you introduce capital that doesn't extract? Capital that strengthens systems instead of draining them? The equations change. The equilibria shift. And suddenly, outcomes that seemed impossible become structurally inevitable.
GERC rewrites the mathematics of economic equilibrium to include regenerative capital as a distinct variable—showing how system-wide stability improves when extraction isn't assumed.
The Problem with Extractive Equilibrium
Classical general equilibrium theory (Walras, Arrow-Debreu) describes how markets clear—how supply and demand reach balance across all goods and services simultaneously. But these models embed a critical assumption:
The Hidden Assumption
All capital demands positive returns. Interest must be paid. Profits must be extracted. Value must flow from the system to capital holders.
This assumption creates structural problems:
Extraction Pressure
Every unit of capital in the system demands returns, creating constant pressure to extract value from productive activities.
Short-Termism
Positive time preference (preferring value now over value later) is built into the discount rate, systematically undervaluing long-term outcomes.
Growth Imperative
To service extraction requirements, the system must continuously grow—creating the treadmill effect that environmental economists identify as unsustainable.
Introducing Regenerative Capital to Equilibrium
GERC extends standard general equilibrium models by adding a new capital class with different properties:
| Property | Extractive Capital | Regenerative Capital |
|---|---|---|
| Return requirement | Positive (r > 0) | Zero or system-directed |
| Time preference | Discounts future | Mission-aligned horizon |
| System effect | Drains capacity | Builds capacity |
| Equilibrium impact | Requires growth | Enables stability |
The key insight: When some fraction of capital in an economy operates regeneratively, the extraction pressure on the whole system decreases. The equilibrium shifts toward stability rather than requiring perpetual growth.
The Core Equations
Standard Equilibrium
All capital demands return r, creating aggregate extraction requirement:
E = K × r (extraction = capital × rate)
GERC Equilibrium
Split capital into extractive (Ke) and regenerative (Kr):
E = Ke × r (only extractive demands return)
The Regenerative Fraction Effect
Define the regenerative fraction: R = Kr / (Ke + Kr)
As R increases, aggregate extraction requirement decreases proportionally. At R = 0.3 (30% regenerative capital), extraction pressure drops by 30%.
This isn't a marginal effect—it's a structural shift in how the economy reaches equilibrium.
System-Wide Implications
Reduced Growth Imperative
With less extraction pressure, economies can reach equilibrium without requiring perpetual expansion—addressing the core sustainability paradox.
Long-Horizon Viability
Regenerative capital doesn't discount the future, enabling investments in infrastructure, climate, and institutions that extractive capital structurally undervalues.
Capacity Building
Instead of draining productive capacity to service returns, regenerative capital leaves capacity in the system—enabling compounding improvements.
Crisis Resilience
Systems with regenerative capital fractions have buffers—capital that doesn't flee during downturns because it isn't chasing returns.
Common Questions
Isn't this just saying "less extractive capital is better"?
It's more precise than that. GERC shows exactly how regenerative capital changes equilibrium conditions—the mathematical relationships that determine what's stable. It's not advocacy; it's analysis of what happens when you modify the capital composition.
Where would regenerative capital come from?
Philanthropic endowments redesigned as PSC, sovereign wealth funds with mission mandates, community development pools, and any capital structure where returns flow to system strengthening rather than extraction. The source matters less than the structural properties.
How much regenerative capital would be needed to matter?
The paper models different scenarios. Even small fractions (5-10%) in specific sectors create measurable effects. At 20-30% in key infrastructure sectors, the equilibrium properties shift significantly. It's not all-or-nothing.
Does this conflict with standard economic theory?
It extends standard theory by relaxing an assumption. Classical models assume all capital is extractive—GERC shows what happens when that assumption is modified. The mathematics are compatible; the predictions differ.
Go Deeper
Read the Full Paper
Explore the complete mathematical framework with formal proofs and equilibrium analysis.
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