Capitalization Bus Theory (CBT) is a unified language for observing and analyzing economic and social phenomena.
It seeks to answer three fundamental questions:
- How much Free Cash Flow (FCF) can be generated in the future?
- What discount-rate structure (r-structure) do people and institutions use to price that future?
- Under what Property Rights & Boundaries, and on which Buses, are the rights and obligations associated with these cash flows allocated?
The starting point is the classic discounted present value model:
EPV = sum_{t=1}^{+∞} [ FCF_t / (1 + r)^t ]
Where:
- EPV: Economic Present Value;
- FCF_t: Free Cash Flow in period t;
- r: discount rate;
- t: time period (t = 1, 2, 3, …).
When FCF_t is relatively stable and the institutional and risk structures are relatively stable, simplified approximations may be used:
- If the long-term growth rate g is approximately 0:
EPV ≈ FCF / r - If there is a stable growth rate g (with r > g):
EPV ≈ FCF / (r - g)
CBT’s basic stance is: economics must be human-centric.
- The unit of analysis is the concrete actor, not a “representative individual” that averages away individual differences;
- Behind the variables lie time preference, psychological discounting, fear, and hope;
- Institutions, power, war, religion, and narratives all shape asset prices, industrial structures, and social stability by changing the structure of FCF and r.
CBT provides three things:
- A “theoretical constitution” consisting of three axioms;
- A structured language for translating problems into FCF / r / Buses / Boundaries;
- A toolkit—including the Analysis SOP (Domain Gate + Four-Step Bus Analysis), the Bus Generation Interface, the Capability Bus, the Happiness Bus, the R-I-S-C Hierarchical State Map, and the Discount-Rate Scissors Gap (Δr)—for diagnosis and decision-making by individuals, firms, cities, and nations.