How can Christchurch City Council solve its financial woes with a $534 million shortfall in its budget. I sit watching the television and think, “I wonder if the people of Christchurch know that money is a human invention?” and “I wonder if they know how money is created and by whom?”
I suppose I am one of a handful of people who, through my life circumstances and choices, have studied money creation and especially local currencies. I spent seven years researching and writing a book on the topic, studying community currencies and national currencies throughout human history. Money is an agreement to accept something for payment. It is a social contract. We accept money because we know that other people trust it. Its value rests on a belief about a belief.
But what gives money its value? We need to choose something that we all have to pay so that we know the next person will trust it. That means taxes, or it could mean rates, insurance or food. The national currency we all use is trusted because everyone knows that in the end the Treasury will accept it for payment of taxes.
So how is Christchurch’s problem solved? None of the options given by the official report sound good to me – reduce the rebuild costs, increase rates, cut spending, borrow more, ask Government to pay more, or sell public assets.
But we can create our own money. It’s just that currently the banks have that privilege and government allows them to create money as interest bearing debt. I won’t go into the many and dire consequences of this destructive practice, but I will say this: Banks create money when they lend it into existence mostly to get the security on some land. They like it that way.
Everyone knows how much they owe their bank on their mortgage and when they see our big four Australian owned banks making huge profits, they know their mortgage payments go off to Australia and beyond.
It doesn’t take long to discover the staff from the restructuring firm who wrote the official KordaMentha report come from traditional university training in finance, accounting, law or business. And you can bet your bottom dollar that not one of them has had more than minimal teaching on how money is created and by whom. They don’t get taught the history of economics. Few (if any) will have studied the existence of complementary currencies or even know they exist. So they aren’t likely, any more than are Auckland City Council’s consultants, to offer a solution which includes any of this knowledge.
My proposal is for a land backed currency created by the Christchurch City Council, spent into existence without interest, dated and acceptable for rates by that date. The currency is created to gradually buy bare land in the inner city. Iwi and hapu should be involved to exclude sensitive land, and where relevant the titles checked by the Maori Land Court. The Government must also legislate to allow trades in this currency to be free of income tax and GST, for Christchurch City Council to be able to accept the local currency for rates, and for the Council to share its land rental revenue with Government. The Government must also legislate to allow the Christchurch Land Dollar to be acceptable for the payment of rates. City Council staff and contractors must be persuaded to accept part of their payment in Christchurch Dollars. This is the first way of many ways the Council will save precious national dollars. Gradual buy up is needed to avoid inflation.
Another thing I noticed was that central Christchurch isn’t thriving and a developer on television was almost begging for tenants to move in. The reason is the land in the centre of the city is only given value by the community. When infrastructure is built, businesses move in, and community facilities buzz with action, people will want to buy there and the price of land rises. This windfall is publicly created and should not be privately captured. Hence the need for full land rentals. Probably the best method is Council ownership of land with fair lease arrangements for both parties. The rental should preferably set by auction, with rents adjusted annually according to a new rental index for the area. Rents rise as the city rises and that solves the rating problem. The more facilities are built the higher the rental revenue. To ensure future Governments do not subvert the process by reducing the rents for electoral purposes as the 1970 Gorton government did in Canberra, the legislation should be enshrined. This suite of safeguards avoids the worst pitfalls of leasehold purchases. Speculators can then not benefit from Christchurch’s pain and loss.
Although this proposed solution will allow Christchurch city to thrive, it is unlikely to be taken seriously. But I can tell you this: In previous economic crises people have solved grave problems by novel methods. We can look at how Germany solved its hyperinflation problem in late November 1923 and learn a valuable lesson. They started a new bank and it issued a new currency and the hyperinflation stopped dead in its tracks. Or we can look to a small Austrian town called Wōrgl in 1932 and see how a local currency solved its unemployment problem and a situation where people weren’t paying their local rates. In a very short time they turned this around. The city built infrastructure, unemployment declined dramatically and people paid their taxes early.
Conventional economic thinking has been the cause of ever deeper holes that we find ourselves trying to dig out of. The only economists to see the GFC coming were largely the ones who recognise the privilege of private banks to create our money supply and the structural problems this system creates. By freeing our monetary system from this broken design, we can start to get the upper hand in dealing with a whole range of pressing matters – not the least of which is getting the city and citizens of Christchurch back on their feet without making them poorer in the bargain.