common wealth!

COMMON WEALTH!

Andrew Duffield

North East Humanists

July 2009

An Economic Credo for Humanists

Life’s 2 Certainties• TAXATION

• DEATH BY POWERPOINT !

(NB - in the event of death, inheritance tax applies.)

Semantics…• We have beliefs too!

• Founded on reason and scientific evidence

• Science is underpinned by immutable laws

‘Credo’

‘Economics’• Also has immutable laws

- ‘oikos’+‘nomos’=‘house-law’

• Called ‘the dismal’* science- *due to semantic obfuscation?!

• A man-made system – yet more chaotic than the weather!

Some Definitions…• ‘The use of finite resources to

satisfy needs and wants.’

• ‘The production and exchange of wealth.’

• ‘The study of choice, as affected by wealth.’

‘Common Wealth’• Aftermath of English civil war?

• Ironic, post-imperial epithet?

• “Economics of plenty”- recovering ‘community-created value’- fair shares in Earth’s resources- justice, welfare, posterity - freedom / choice

Humanist Beliefs

- Amsterdam Declaration (2002)

• “…freedom compatible with the rights of others…”

• “…duty of care to all…including future generations.”

• “application of…science…to the problems of human welfare.”

NEH‘Values & Actions’

• “…development of social, economic and political systems capable of delivering [equal rights].”

• “…trade which could lift millions… out of poverty.”

Poverty of Religion• “The poor will never cease to be in

the land” (Deuteronomy 15:11)

• “You always have the poor with you”(John 12:8)

• “For you will always have the destitute with you” (Matthew 26:11)

• "For you always have the poor with you, and whenever you wish you

can do good to them”! (Mark 14:7)

How to Kill Poverty…

…for Common Wealth

Part 1: Production

Wealth Creation

Wealth Distribution

Earned Wealth Unearned Wealth

TAXATION

-‘Blessed are the rent seekers…’?!

The ‘Wealth Gap’• Earned Wealth

-Rewards human ingenuity, planning, endeavour & risk.

-Has production cost

-Heavily taxed, directly & indirectly

• Unearned Wealth-Rewards privilege of ‘natural monopoly’, needing no active input

-Has no production cost (being socially created)

-Hardly taxed at all

• Moral?

T’was Always So!

- circa Great Enclosures (1760-1820)

When the goose was stolen from the common,

They hanged the man and flogged the woman;

But they let the greater thief go loose,

Who stole the common from the goose.

The Rent Penny Drops• Tom Paine (1737-1809)“It is the value of improvement only, and not the earth itself, that is individual property.”

• John Stuart Mill (1806-1873)“The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.”

Local Hero• Thomas Spence

– Born Newcastle 1750– Supporter of Paine– Advocated “common

ownership of land”– Banned from Newcastle

Philosophical Society!– Oft imprisoned, d.1814

(with thanks to the Newcastle Literary and Philosophical Society)

National Hero

- Winston Churchill, 1909

“Roads are made…services improved …while the landlord sits still.Every one of these improvements is effected by the labour & cost of other people… To not one of these improvements does the land monopolist contribute… He renders no service to the community, he contributes nothing to the process from which his own enrichment is derived.”

Brain teaser• What is the

world’s biggest selling and most translated non-fiction book ever published, which is still in print today?

Brain teaser• What is the

world’s biggest selling and most translated non-fiction book ever published, which is still in print today?

‘Progress & Poverty’• Seminal work

(1879) of American Henry George (1839-1897)

• “There is, in nature, no reason for poverty.”

By George!• ‘Economic Rent’ is the natural fund

for public services & infrastructure• Taxing Rent helps properly value &

conserve finite natural resources• Every dollar recycled from Resource

Rents means one less from labour• Removing labour & capital tax frees

workers & stimulates creative growth

‘Land Value Tax’• Charge on the economic rent of land• Owners use their natural monopoly as they choose, & pay for the privilege

NATIONALISATIONNOT

NECESSARY !

Advocates• Alfred Russel Wallace

– “The most remarkable and important book of the present century."

• HG Wells & George Bernard Shaw– Cited Henry George as main reason they

became Socialists (though George wasn’t).

• Leo Tolstoy – “Solving the land question means the

solving of all social questions.”

Chequered History• Lloyd George’s 1909 People’s Budget

– Defeated by Lords, leading to Parliament Act

• Labour’s 1931 Budget– Overturned by Tory government in 1934

• Small scale municipal taxation– Pennsylvania, Denmark, Australia

• Hong Kong…

Other supporters• Albert Einstein

• Sun Yat-Sen

• Milton Friedman

• William Vickery (1996 Nobel prize winning economist)

Detractors• Landowners !• Anyone landowners

could pay to smear George & his ideas– Economists– Politicians– Speculators / Bankers

• A rival author…

Marx’s Muddle• “Abolition of property in land and application of all rents of land to public purposes.” - Communist Manifesto (1847)

• Discounted all non-man made value to ‘prove’ labour the measure of value

- Das Kapital, Vol 1 (1867)

• Called George’s Land Value Tax idea “the last ditch of the capitalist.”

The Ditching of Land

Going…

Going…

Gone!

Look familiar?

Why Land isn’t Capital• Land

– Natural resources– Tends not to

depreciate– Non-portable– Finite supply– Value unrelated to

size/quantity– No production costs

• Capital– Always man-made– Tends to depreciate

(unless maintained)– Ultimately portable– Variable supply– Value largely linked

to size/quantity– Production costs

What ‘Land’ IS• Locational / Site Values• The Radio Spectrum• The Atmosphere• Mineral Wealth• Fresh Water• Forests & Fisheries• Any natural monopoly• Community-created values…

Radio Spectrum • 3rd Generation

mobile phone bandwidth auction in

2000 raised £22 bn

• In 2025 government can auction value again

…and again and again

Airport Slots• Take off & landing

slots at UK airports

• Single slot-pair sold in 2004 for £10m

• Potential revenue c.£5 bn per year

Emissions Permits

• Used to ‘cap & trade’ pollution rights

• EU gave away its permits in 2004, effectively privatising atmosphere!

• 60% permit auction from 2013?

• Potential to replace VAT, EU-wide

Jubilee !• 1999 Jubliee Line Extension• Total cost £3.5bn (5% private)• Residential land uplift c.£9bn*• Commercial land not assessed,

but c.£2bn just for Canary Warf

* Transport for London report

4 Canons of Taxation

- Adam Smith, Wealth of Nations (1776)

• That it bear as lightly as possible upon production [enabling growth]

• That it be easily & cheaply collected [efficient, with direct incidence on payer]

• That it be certain [minimising opportunity for corruption and/or evasion – i.e. effective]

• That it bear equally [giving no advantage or disadvantage, so being equitable to all].

UK Tax Assessment• Enabling?

– Income Tax, NI, VAT, Stamp Duty etc - all ‘deadweight taxes’ on productive activity

• Efficient?– Direct taxation collection costs fall on firms

• Effective?– The richest avoid a lot of taxes completely

• Equitable?– The poorest people pay the most!

FAIL

FAIL

FAIL

FAIL

Bad Tax Outcomes• Productive work penalised

welfare dependency, poverty traps, crimesocial breakdown, increased welfare costsmore tax/borrowing, debt, disease, death

• Rent seeking rewardedland/resource speculation, price bubbleshousing shortages, unaffordable homesinequality, instability, boom-bust, war

Bad in Principle…• Income Tax / National Insurance

– Paid by firms on behalf of employees– Business costs, passed on in higher prices– Ultimately paid by end consumers– Disproportionately higher impact on poor!

• VAT– Penalises ‘added value’ on goods & services– Regressive, like ‘direct’ employment taxes.

..& PracticeGross salaryGross increase after

pension reductionEmployers NITotal employer costsEmployees NIIncome TaxTotal wages taxation% of wages taxes paid

Alan£15,000.00

£100.00£12.80

£112.80£11.00£20.00£43.8038.8%

Bob£150,000.00

£90.00£0

£100.00£0.90

£36.00£36.9036.9%

“The Best Tax…*

*…we never had.” – Victor Keegan, Guardian

• Land Value Taxation– Encourages best use of the ultimate resource– Increases land supply for new housing– Encourages empty properties back into use– Lowers rent and rates (if ‘revenue neutral’)– Can’t be avoided, since land can’t be hidden!– Can’t be passed on, so landowner must pay– Reduces speculation – and boom-bust

Global benefits“Land Value Taxation is the appropriate instrument for the urgent fight against global inequality and poverty…”

- UN-HABITAT/UNICEF report (2006)

Economic Morality• The linked crises of environmental

degradation and the destitution of a third of humanity are not failures of economics, or of markets, but of governments permitting the private appropriation of Economic Rent, which is morally owed to the people from whom its value derives.

Georgist Legacy !

Talking Bankruptcy…

How to Kill Poverty…

…for Common Wealth

Part 2: Exchange

Some stats…

BIG MONEY• £744,000,000,000 (£744bn) =

UK’s net national debt at March 2009

• £84,000,000 = Daily interest on this debt(£118m/day by 2010-11 or £43bn/year)

• £1,460,000,000,000 (£1.46 trillion) = Total UK personal debt at March 2009

• £232,000,000,000 (£232bn) = Total personal lending for last 12 months

small change• £21,580 = Average UK household debt

(excluding mortgages).

• £30,471 = Average owed by every UK adult (including mortgages).

• £1,200,000 = Increase in UK personal debt per hour during March 2009.

• 17.6% = Current average UK credit card interest rate (17.1% above base rate).

Human Costs• 23,000 = Current average number of UK

redundancies, per week.

• 7,241 = New CAB debt problems, per day.

• 10 = Current average number of minutes between UK home repossessions.

• 4.5 = Current average number of minutes between UK personal bankruptcies. 

1 = Life

TheContinuing

GreatEconomic

Conundrum

With so Much to Do…

…and so Many Hands…

…why is there Never Enough Money?

Two Types of Money• Legal Tender

– Notes & coins issued by government and sold to banks at face value for onward circulation, free of debt

• Credit– Issued by private banks as interest-bearing

debt and deposited into customers’ accounts under ‘fractional reserve banking’

>97% of

Money Supply

<3% of

Money Supply

‘Fractional Reserve’• Formalised by charter establishing

Bank of England in 1664

• In practice <10% of depositors likely to withdraw gold at any one time

• ‘Promise to pay’ notes safely* issued at many times gold reserves held

(*excepting a ‘run’ on the Bank!)

Banking Alchemy• ‘Credit’ is thus created

from absolutely nothing

• Almost all money now loaned into existence as interest-bearing debt

• Reserves are now ‘gilts’ (Govt. promises to pay)

So…

Banks are actually Credit Institutions, creating Credit as interest-bearing

loans....

...forming…

an inverted Credit Pyramid, on a base of ‘Regulatory Capital’...

...moreover…

this debt-based Credit constitutes over 97% of the Money we use...

…meaning…

Banks don’t lend pre-existing Money…

<3% of

Money Supply

…but…

Create new Money from thin air…

>97% of

Money Supply

…which…

is Deposited back into the System…

…as…

…generating…

‘interest’ for the Banks; wealth that

is completely unearned.

Unearned Wealth

‘Economic Rent’

Summary for Banks:

Summary for us lot:

- Sir Josiah Stamp (1880-1941), Governor of the Bank

of England prior to the Great Depression and the second richest man in Britain at the time

“Bankers own the earth; take it away from them but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again…

…if you wish to remain the slaves of Bankers and to pay the cost of your own slavery, let them continue to create deposits."

So where has all the Money gone?

Crunched !

Fuelled by soaring Property Prices…

(a direct function of the uncollected rent of land)

…Demand for Credit (i.e. debt-money)grew so much…

…that Banks began outsourcing their

‘promises to pay’ to Reduce the Risk...

…using Equity (i.e. shares) to support more

Credit Creation…

…then selling “mortgage-backed

securities”…

…and high risk “Credit Derivatives”…

…so Banks could meet capital requirements for even more loans…

More Debt

Debt

Equity

…which grew…

More Debt

Debt

Equity

…and grew…

…and grew…

Yet More Debt

More Debt

Debt

Equity

…tobe sliced…

…anddiced…

Yet More Debt

More Debt

Debt

Equity

…re-packaged and re-sold…

…often to other Banks…

…until no-one knew where the risk lay…

…or what it amounted to…

…then…

…the banks stopped lending…

…Crunch Time!

Government response

*“Death-Grip”!

• Multi-billion bailouts• Trillions worldwide!• Hope: banking liquidity• Use: re-capitalisation!• Cost: the mortgage* of

future generations to mass, unsustainable tax that, under the current system can only be paid by taking on more debt!

The single most……important step

that Governments should have taken was to make any bailout conditional on writing down the value of loans to reflect the real value of property.

Quantitative Easing• How Central Banks

deal with liquidity (shortage of money) without waiting for a bank recovery.

• They issue it direct!– Ideally by spending it

straight into circulation through capital projects

Debt-free money!• Issuing money free of interest-bearing

debt is what governments should do.

• Governments do not need to borrow their own currencies from private banks!

• Inflation is NOT caused by “too much money chasing too few goods”, but by too much DEBT-MONEY issued by banks (and in hyper-inflation cases, by devaluation caused by massive currency speculation etc).

3 possible policies• Nationalise UK Banks

• Introduce a ‘Credit Creation Charge’– Banks taxed on sterling issued over and above

what they attract in deposits

• All sterling issued by Bank of England– Private banks buy sterling credit at base rate for

onward lending and/or investment

Policy isn’t critical• The Principle IS

– Sterling belongs to all UK citizens. Our acceptance & use of sterling gives it value.

– Banks have no moral right to add ‘interest’ to sterling they haven’t taken in deposits. This is unearned wealth, i.e. Economic Rent.

– Economic Rent is the one source of wealth that belongs to all of us; “Common Wealth”.

So…

• To stop housing being used as an investment vehicle rather than as homes…

…and…• To kill the

poverty caused by speculative & inflationary bubbles…

…and…• For debt-free

growth that doesn’t penalise work or distort markets…

…with…• World-wide

social, political & environmental dividends…

RECOVER & RECYCLE ECONOMIC RENT

10/04/23 108

…so all can share in our Common Wealth!

Thank You!

Economic Morality• The linked crises of environmental

degradation and the destitution of a third of humanity are not failures of economics, or of markets, but of governments permitting the private appropriation of Economic Rent, which is morally owed to the people from whom its value derives.

‘Golden’ Economics• “Satisfy others’ needs & wants

as you would want yours satisfied.”(command economy?)

• “Satisfy others’ needs & wants as they would want theirs satisfied.”

(market economy?)

‘Platinum’ Economics