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Tag: Henry George

Sacred Economics

Here is a helpful quote which gets to the heart of Henry George’s message form a new book entitled

Sacred Economics Money Gift and Society in the Age of transition by Charles Eisenstein. You can see more details and download chapters of the book here

Polarization of wealth is inevitable when people are allowed to profit from merely owning a thing, without producing anything or contributing to society. These profits, known as economic rents, accrue to the holders of land, the electromagnetic spectrum, mineral rights, oil reserves, patents, and many other forms of property. Because these forms of property either were prior to any human being or are the collective product of human culture, they should not belong to any private individual who does not use them for the benefit of the public and the planet.
In addition, today it is possible to profit by depleting aspects of the commonwealth such as biodiversity, aquifers, soil, ocean fisheries, and so on. These properly belong to all of us, and their depletion should only happen by common agreement and for the common good.
Transition and policy: Some states and nations already levy land-value taxes, and others have nationalized oil and minerals. The country of Bolivia and the state of Alaska, for example, assert public ownership over oil rights, so that oil companies earn money only for their services in extracting the oil, and not from owning the oil. Shifting the tax burden away from labor and toward property will become more and more attractive as wage earners’ situations become desperate. Finally, as intractable regulatory battles over water rights show, building resource conservation directly into the money system is an idea whose time is coming.
Measures such as Georgist land-value taxes, leasing of mineral rights, and the use of the subjects of economic rent as a currency backing as described in this book are ways to return economic rents to the people, so that private interests can only profit by using property well, not by merely owning it. Anything that comes from the commons should be subject to fees or taxes. Intellectual property can be returned to the commons by shortening the terms of copyrights and patents, thereby acknowledging the cultural matrix from which ideas arise. We must also keep new sources of wealth, such as the genome, the electromagnetic spectrum, and the new “commons” of the internet, in the public domain, allocating their use only to those who use it to benefit society and the planet.
Effect on economic life: With a shift of taxation onto property and resources, sales and income taxes will be reduced or eliminated, and a strong economic incentive for conservation created. Since economic rents enrich those who already own, eliminating them will foster a more equitable distribution of wealth. In the realm of intellectual property, the widening of the public domain will encourage cultural creations that are not geared toward profit, as the “raw materials” of artistic and intellectual creation will be less subject to royalties and the limitations of private property.

Land Value Taxation in the News

Last week the policy strongly advocated by Henry George of taxing land values hit the front page of the British press. [see here] The Sunday Times [not available online without subscription] ran a column by Marie Woolf entitled “Lib Dems want a land tax on rich.” It suggest the Liberal Deomocrats are planning a new land tax aimed at wealthy landowners. It quotes Vince Cable as saying that Britain needed a proper examination about how a land tax could be made to work adding “Government is going to look at this at some point because the traditional tax base is more and more difficult to apply. Income tax for high earners is becoming difficult to enforce. The traditional tax bases have been eroded and land tax is the one thing you can’t take off to Monaco. Business rates would eb the first thing to look at . There are modest changers you could replace business rates with a tax based on the value of the site; then instead of council tax you could have a property tax based on the underlying  value of the land based on an annual basis.” [See here and here for details of how this could be done].

The Nature of Money

The Nature of Money

By David Triggs

Recent events in the world of government, money and banking have demonstrated an appalling ignorance by those charged with managing the nation’s money supply.

The media have been no better. The economic problems are assumed to hinge around monetary issues—but nobody now seems willing to be clear what money actually is and how it is created.

Thirty five years ago the renowned economist John Kenneth Galbraith, in his book ‘Money—Whence it came, where it went’ provides a possible explanation. He said: “The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent.” He was referring to the way that banks create money by lending money they do not have. Having lent it, it becomes a deposit in the account of the person or firm that borrowed it and, Hey Presto!—it is regarded as a financial asset. This, the famous, but rarely mentioned ‘money as debt’ issue, is why the supply of money has got out of control, and why governments thought they could control the money supply by controlling the interest rate. Nearly a hundred years before Galbraith, Henry George addressed the money issue and his findings should be studied by anyone attempting to deal with it today. First, he was clear about the primary function of money, next he took the trouble to distinguish:

(a) between money and wealth

(b) between money and credit

(c) between money lending and credit, and

(d) between money creation and money circulation.

Having clarified these points he was able to identify the duty and role of government with regard to money, and the legitimate business of banking. George held, as he said any five-year-old would tell us, the purpose of money is to buy things with i.e. it is a medium of exchange.

Essentially the only value of money is ‘in exchange’—it need have no value ‘in use’.

As money becomes the ‘most exchanged’ of all things it becomes the most common measure of ‘value in exchange’. The value of all exchangeable or traded things may thus be measured in money units. He was clear about the need to distinguish between money and wealth. Money is not wealth although it may be exchanged for wealth.

Wealth is tangible, money is intangible. Whilst the true nature of money is abstract, over the ages it has taken many tangible forms e.g. shells, metals, coin, paper notes and tokens of debt etc.

It is in essence, however, distinct from any and all the forms it may take. In addition to being generally accepted in exchange for goods and/or services money needs to be somewhat difficult to come by. This is because its value depends upon the difficulty associated with acquiring it. Note here it is the difficulty of acquiring money that is significant not any difficulty associated with producing it that matters. In contrast the value that attaches to an item of reproducible wealth is directly associated with the difficulty (i.e. labour) of producing the like again.

Thus George asserted that the value of ordinary wealth comes from production whilst the value of money comes from obligation—the obligation, as with land, that everyone is under to use it. Some rare items of wealth e.g. an artistic masterpiece may derive its value from both production and obligation.

Simple credit arises when one individual (or group) agrees to postpone collection of payment from another individual (or group) to bridge the time gap between the commencement of a productive venture and the completion of a saleable product. The most common examples are where employees give credit to their employers by agreeing to be paid in arrears and where suppliers allow for a settlement period. Such credit requires knowledge of, and confidence in, the other party, it does not generally work between strangers and the transaction is not complete since a debt remains. This may be contrasted with the situation where money is used— transactions are complete and no debt remains.

Although employees and suppliers are the most common providers of credit they are not the most widely recognised as such—banks are. Banks specialise in credit and may provide it to a producer if the bank believes the debt will be redeemed from new wealth that the producer is thereby enabled to produce. In this credit becomes an alternative means of accessing real capital i.e. wealth used to produce more wealth.

If money is not wealth it cannot be capital or a store of wealth. It is however commonly regarded as a store of value. Clearly where money is stored it cannot circulate or perform its primary function as a medium of exchange. Here we may see the importance of distinguishing between credit and money.

Clearly credit and debt can accumulate and thus become a means by which claims on wealth may be stored. Wealth itself may also be stored (e.g. as commodities, gold, diamonds, works of art, artefacts or buildings, etc.).

The mortgage provider and the pawnbroker are the two examples of money lending that most people will be aware of. Here money is lent against a lien on property. If the borrower defaults, the property (or part of it) is forfeit.

For the pawnbroker or the building society the money lent will be money that is already in circulation. A mortgage from a bank however may be quite a different matter, and is the most well known example of the ‘money as debt’ system referred to earlier. Banks have a massive usurious incentive to exploit the licence they have been given to create money in this way. Such money is not created and put into circulation in response to a need to facilitate more production (including trade) but merely to enable land (which nobody produces) to be bought and sold. The more this money becomes available the higher the price of landed property and the more debt there is in society. Where the wealth must come from to fund the so-called interest payments is another story.

Unlike a token of credit, where its value derives from a confidence in production, the value of money does not come from production but rather from a confidence that such money will generally be accepted in exchange for goods and services or redeem any obligation or debt. Ultimately the confidence has to be in the honesty and integrity of the body that issues and controls the amount of money in circulation.

Henry George points out how… “These obvious considerations have everywhere, as society became well organized, led to the recognition of the coinage of money as an exclusive function of government.”

George does not ignore the fact that such power has been abused in times past as monarchs and governments have sought to enrich their exchequers by such practices as clipping and debasing their nation’s currency.

Rather he regards the transparent risks involved in governmental abuse, where they have direct responsibility for the issue of currency, to be less than those that attend the more obscure regulation of private individuals and groups, who are granted such a privilege. George considered it wrong and dangerous to permit individuals and associations (i.e. private banks with a pecuniary interest) to issue money.

He argued that doing so had a corrupting influence on government (due to the need for regulation) and occasioned a substantial financial loss to the general population. No doubt recent events concerning the regulation of banks and financial institutions by government agencies would have reinforced his concerns and provides  much evidence to support this view. George concluded that the issue of money and the control of its supply is the exclusive business of Government.

The legitimate business of banking is limited to the safe-keeping and loaning of money, and the making and exchange of credits.

Under current arrangements it would seem to be impossible to distinguish between Bank created money based on debt and money issued directly by government. They merge as one. If George’s idea of government issued money (legal tender) being strictly and directly under the control of government were to be implemented, a clear separation would be required. It is not too difficult to envisage a situation where bank-created tokens of credit denominated in money units could be exchanged for legal tender at something other than a one for one basis. Most of us are already familiar with a working model—the daily use of both debit and credit cards and their associated accounts.

One could envisage a situation where all payments to and from the government would only be permitted in government issued money (plastic, digital and paper) and how all this money would be registered just as bank notes already have an ID code attached. They could also have a limited life to ensure their circulation rather than storage. Maybe the nation would not need all that much of this money to do its primary job.

The value of the bank notes in circulation at present is, according to the Bank of England, around £50 billion. If, as seems likely, each note could be used at least twelve times a year i.e. compatible with the normal monthly interval between payments of salaries and accounts this would enable 50 x 12 = £600 billion worth of trade to be carried out using these notes. Since this represents around a third of the current GDP, would a mere tripling of government issued money, which currently represents between 2% and 3% of the broad money supply, be sufficient to enable all genuine trade to be carried out? Would we then see more clearly what the remaining 90% plus money has been created for?