When I was writing my book on money I noticed there were two camps that claimed they had the “complete answer” to growing debt, environmental deterioration and inequality.
One was the monetary reform movement and one was the natural resource taxes movement. In some cases the antipathy to the other movement was palpable.
Why was this? Well when monetary reformers advocate money being created without interest, some – but by no means all – of them realised the detrimental consequence. The price of property increases. Without so much interest to pay, the extra liquidity simply goes into land speculation. The price of sections rises, the price of houses rise and this brings inflation. (well since 1999 this hasn’t been measured because land came out of the Consumer Price Index. The CPI no longer reflects reality) But in the seventies I recall the professionals all out- smarting each other by buying sections, which obligingly rose in value before their very eyes.
I even met a Georgist who said he will fight inflation to his dying breath and would never, never consider interest free money. To him the monetary reform movement was the enemy. He tended to confuse interest when it is involved with money creation with interest when it is the price you pay for borrowing already created money. But he didn’t know it.
During the Global Financial Crisis of 2008 more Georgists became aware of the activities of banks, especially in America. They looked at the issue and some became enthusiastic monetary reformers as well as Georgists.
But how do you marry these two issues? Theorists can marry them but not politicians. To put it mildly it’s tricky. A group of us have worked on it for two years and have come up with a possible solution. It is a slideshow at http://www.slideshare.net/deirdrekent/the-land-dollar-a-national-land-backed-currency. I presented it at the recent Council of Georgist Organisations conference in California.That is as far as we have got. And of course, since we have to reform the welfare system too and replace it by a Basic Income that is yet another challenge and must be integrated into the solution(s).
It is not surprising that those who find monetary reform the most difficult – the group that is quickest to dismiss it – are the traditionally educated economists. They know that low interest rates cause land speculation and they seem unable to redirect money towards productive enterprises and away from land and other natural resources in limited supply. A few of them (quite a few, but politicians consistenly ignore them) advocate a small land tax.
Of course money will flow into land speculation when there is no price to be paid for holding land.
British Colonists did two things: they introduced western banks and the money system that came with it and they changed the land tenure system. Freehold land was what the settlers wanted. The definition of freehold is “land free of rent”. And that is what we have. As I watch the Commonwealth Games I think of what the British have done to bring inequality and injustice right round the world. The same could be said for Spain or Portugal I suppose.
So it is heartening to know there are now a handful of economists tackling the issue of combining the two issues. They come from the Georgist movement – Michael Hudson, Nic Tideman come to mind.
Reversing the tax system is huge, as 80% of New Zealand’s tax revenue comes from income tax, GST or company tax when it should be coming from land value tax, other resource taxes and from Pigouvian taxes.
I have no idea how it will all play out. But I can’t help getting the feeling that politicians are faced with the biggest political challenge of the 21st century – the task of creating money without interest as well as changing the tax system and fundamentally reforming the welfare system away from asset or income testing.
What is needed is a way to reverse the colonisation process.
With inequality and climate change being the big two issues of the early 21st century, the time for political creativity is now.