The Framework · Transmission Economics
How capital moves
through the economy.
Transmission Economics is the research framework behind the PRICI Foundation’s work. It looks at a simple question: when money is put into the economy, what decides whether it reaches productive investment, jobs and wages?
On This Page
Eight short steps
Each step builds on the one before. Technical terms are explained as they appear, and there is a glossary at the end.
The question
What existing economics asks, and what it leaves out
The core idea
Capital tends to follow the easiest route
The equation
One equation for capital flow
Measuring friction
The four sources of impedance
What it means for policy
Reduce friction before adding stimulus
How the pieces fit
Three ideas, one framework
The tools
Turning the ideas into measurements
Testing it
How the framework could be proved wrong
Step 1 · The Question
Most economics asks how much. We also ask how well.
The main schools of economic thought disagree about a great deal, but they tend to focus on the quantity of money and spending: how much is needed, and how to manage it.
Transmission Economics adds a second question: once money enters the economy, how easily does it reach productive use? In other words, how well is it “transmitted” — hence the name.
This is meant to complement those traditions, not replace them. It focuses on a factor they all rely on but rarely measure directly.
How much demand does the economy need?
How much money should be in circulation?
How do firms act under uncertainty?
How much can a government spend before hitting real limits?
An analogy: think of the economy as a network of pipes. Most policy debate is about how much water to pump in. Transmission Economics looks at the condition of the pipes — because if they are narrow or blocked, pumping harder may not help much.
Step 2 · The Core Idea
Capital tends to follow the path of least resistance.
Standard models usually assume that money flows to wherever it will earn the best return. Our working hypothesis is that, in practice, it also flows to wherever it meets the least friction — the fewest delays, costs and obstacles.
Those two places are not always the same. Building a factory can offer a good return but involve planning delays, uncertain rules and years of risk. Buying existing shares or property can be much quicker and simpler. When the friction gap is large, money can favour the easier route even if the productive one would do more good.
We call this friction systemic impedance, written with the Greek letter Ω (omega). Its opposite — how freely capital can flow — we call conductance, written G. The two are simply linked:
Both run from 0 to 1. A G of 1 would mean no friction at all; a G of 0 would mean capital cannot get through.
Step 3 · The Equation
The Resistive Capital Gradient
The core idea can be written as one short equation. We call it the Resistive Capital Gradient (RCG). It describes how much capital reaches a destination, using three things that together determine it.
How much capital actually reaches a destination — for example, business investment in a sector.
How much money is being pushed into the economy, for example through lower interest rates or government spending.
How much better that destination pays than the alternatives, after allowing for risk. (Δ, “delta”, means “difference”.)
How freely capital can get there, from Step 2. Lower friction means a higher G.
Why the terms are multiplied
Because the three terms are multiplied, a very low value in any one of them holds back the whole result. Plenty of pressure cannot make up for a channel that is nearly blocked, and an attractive return does little if capital cannot reach it.
Where blocked money goes
Money that cannot easily reach productive investment does not disappear. It tends to move towards easier destinations, such as financial assets and property. We call this internal shunting. It may help explain why periods of heavy stimulus have often lifted asset prices more than investment or wages.
Step 4 · Measuring Friction
What makes up impedance (Ω)?
For impedance to be useful, it has to be measurable. We propose breaking it into four components, each scored from published data such as permitting times, measures of market concentration and company accounts.
The weights are an initial proposal and would be calibrated through testing. Capture is weighted most heavily because we think it does the most to divert capital away from productive use.
Value taken out of a business rather than reinvested, for example through excessive payouts. This is what the PRICI index measures.
Delays and costs from permits, compliance and administrative process.
Barriers created by market concentration and the advantages of established firms.
How hard it is to find, verify and trust the information needed to invest.
Step 5 · What It Means for Policy
Reduce friction first, then stimulate
If the equation is broadly right, there are two ways to increase the flow of capital into productive investment: push more money in, or make it easier for money to get where it is needed. The illustration below compares the two.
Double the pressure
Friction stays high (Ω = 0.70, so G = 0.30). More money goes in, but much of it meets the same obstacles and shunts towards easier destinations.
Lower Ω, then stimulate
Targeted reforms reduce friction from 0.70 to 0.40, raising G from 0.30 to 0.60. On the equation, the same amount of stimulus would then produce twice the flow.
These are illustrative numbers to show the logic, not forecasts. The practical point is that reducing friction may be a cheaper lever than adding stimulus — which is why we suggest asking “what is Ω, and can we reduce it?” before reaching for more spending.
Step 6 · How the Pieces Fit
Three ideas, one framework
Transmission Economics brings together three pieces of work. You have already met the middle one; here is how the other two relate to it.
Iterative Resilience Theory
Starts from the observation that people naturally try to solve problems and improve their circumstances. Growth tends to follow when institutions allow that effort to build up over time, and stalls when they get in the way.
Resistive Capital Gradient
The equation from Step 3: capital flow depends on pressure, the return gap and how much friction stands in the way.
The PRICI tools
Practical measures, built from public data, that estimate friction for firms, public bodies and whole economies — so it can be tracked and, potentially, rewarded for falling.
Iterative Resilience Theory describes three ways growth can stall: loss of knowledge and skills (epistemic), broken links between people and markets (network), and value being drawn off rather than reinvested (extractive). These line up with the sources of friction in Step 4 — the extractive kind, for example, corresponds to the Capture component.
Step 7 · The Tools
Turning the ideas into measurements
Each tool applies the same logic at a different level — from a single company up to a whole economy.
PRICI
Scores how a company balances pricing, shareholder payouts and investment, compared with its sector peers: PRICI = (PI × ES) ÷ (1 + IC). Explained in full on The Solution.
PRICI-Lite
A version for periods when prices are flat, which focuses on payouts and investment rather than pricing. It switches on automatically when sector prices have not risen for four quarters.
PRICI-P
Adapts the approach to public services, looking at how much spending reaches frontline delivery rather than overheads.
Omega Index
Combines the four components from Step 4 into a single impedance score, using published proxies.
Macro-Impedance Audit
Brings company and public-sector scores together into a national picture, and estimates how effective a given stimulus is likely to be.
IRT Diagnostic Toolkit
Three short audits based on Iterative Resilience Theory that help identify why growth has stalled in a particular economy or region.
An illustrative UK scenario
A modelled example to show how the audit would be used. The figures depend on the model’s assumptions and have not yet been independently tested.
Step 8 · Testing It
A framework that can be proved wrong
A useful theory makes predictions that could turn out to be false. The main prediction here is simple: stimulus should work less well in sectors and economies with higher friction.
- Early checks against post-2008 stimulus in five OECD economies, and a 35-country IMF dataset, pointed in the direction the equation predicts
- Independent studies — including Ioannou & Wójcik’s study of 614 cities and Centre for Cities’ 2026 analysis — report patterns consistent with it
- The next step is a fuller back-test against 25–30 major stimulus events from 2008 to 2023
These early results are encouraging but preliminary. The back-test is designed to show whether the approach holds up.
Parliamentary Record
Submitted as evidence
A summary of this work, PRICI: The Growth Engine for Advanced Economies, was submitted as written evidence to the UK House of Commons Business and Trade Committee in 2026, proposing a 12-month back-testing programme.
For Economists
How it relates to other schools
For readers familiar with economic theory, this table compares Transmission Economics with two traditions it draws on.
| Post-Keynesianism | Modern Monetary Theory | Transmission Economics | |
|---|---|---|---|
| Starting point | Firms making decisions under uncertainty | A government that issues its own currency | People trying to improve their circumstances |
| Main constraint | Uncertainty and weak demand | Real resources such as labour and materials | Friction in the channels capital flows through (Ω) |
| Why stimulus can disappoint | Demand leaks away; liquidity traps | Political limits rather than economic ones | High friction diverts it to easier destinations |
| Main policy tools | Public spending, financial regulation | Job guarantee, fiscal space | Measuring and reducing friction (PRICI tools) |
| First question | How much stimulus is needed? | How much fiscal space is there? | What is Ω, and can we reduce it first? |
Post-Keynesianism
Minsky described how financial systems become fragile. We suggest that high friction may be one of the conditions that makes that fragility more likely.
Modern Monetary Theory
MMT focuses on real resource limits. Transmission Economics adds how efficiently those resources are put to use.
Institutional economics
Why Nations Fail contrasts inclusive and extractive institutions. The PRICI tools aim to measure extractiveness on a continuous, regularly updated scale.
Development economics
The IRT toolkit helps identify which of the three causes of stalled growth — lost skills, broken networks or extraction — is most at work.
Glossary
Key terms explained
Transmission
How money put into the economy passes through to investment, jobs and wages.
Systemic impedance (Ω)
The overall friction that slows or diverts capital. Scored from 0 (none) to 1 (complete blockage).
Conductance (G)
How freely capital can flow. G = 1 − Ω.
Resistive Capital Gradient
The equation F = P · ΔR · G, describing how much capital reaches a destination.
Pressure (P)
The amount of money being pushed into the economy through monetary or fiscal policy.
Return gap (ΔR)
How much better one destination pays than another, after allowing for risk.
Internal shunting
Money moving to easier destinations, such as financial assets, when productive routes are blocked.
Capture
Value drawn out of a business rather than reinvested; the component PRICI measures.
Iterative Resilience Theory
The idea that growth follows when institutions let people’s problem-solving efforts build up over time.
PRICI
The Price Restraint and Investment Compliance Index, a proposed company-level score.
Omega Index
A combined impedance score built from the four components of Ω.
Macro-Impedance Audit
A national-level summary of impedance, used to estimate how effective stimulus is likely to be.
Questions
Frequently asked questions, by audience
FAQ by the Public
What PRICI is in plain English, and what it could mean for wages, pensions and prices.
FAQ by Policymakers
Implementation, market reaction, legal questions and how a pilot could work.
FAQ by Academics
Identification, measurement, functional form and how the work relates to the literature.
Before reaching for more stimulus, ask where the friction is — and whether it can be reduced.