Designing a new economy without addressing money system or tax system is futile

If you want to design a political economy that works, you actually have to go to the roots. That means the money system the tax system, the welfare system and the governance system. So I was shocked to read the six winning essays in The Next System’s essay competition to discover that so few of them had addressed the money system or the tax system.

It is like an engineering professor setting out to teach students without having a course on materials. “OK just let’s assume everything is built out of this one material. I have no idea what it is but it is just a given. I have no idea of its properties, but honestly, I don’t want to waste my time thinking about them. They are just here and it is what we have to work with. In fact, if I have a mental block when talking about materials. I have an excuse.”

Federal regulators are setting new rules for banks that offer deposit advances.

Yes that is how stupid it is trying to design a new political economy without thinking about money, the very exchange we use for trading between us.

Or it is like a dressmaker always having the same material available and not being in control over whether it stretches, breathes or shrinks. Dumb dressmaker always assumes that the same material in the same colour is the only one we have available.

Yet the design of money can determine our attitudes to scarcity or abundance and our attitudes to spending or hoarding. And when you realise that the money designer is also the one who decides how much will be created it is doubly worrying. What if the creator of credit pushes out a whole lot of credit at one time and then just slows up for a while? Yet this is exactly what the private banks do because then they make the most profit.

What if the creator of money also designs new instruments for gambling in that money? And they can also steer your investments in certain directions because they are investment advisers and stand to gain if you use certain funds? Yet this is what happens.

And how few of them have addressed the tax system. That is like saying to us, “Well we have got a tax system and honestly I can’t do anything about that. It just is. Well I do know you have to tax the rich more and I assume that means you will put up their income tax.”

Yes it is about as stupid as that. Thomas Piketty warned us to look at the tax system and said how critical it was. I have a quote from him in my book.

The winning essay in the open section mentions money once and tax once.

Trying is the only way…

After many months of feeling in equal parts a) guilty for not writing a blog and b) terrified of writing a crap blog, I am taking the plunge and assuaging one emotion at the extreme risk of solidifying the other!

My terror stems from following in the wake of Deirdre Kent who knows her stuff New Economics-wise and I suspect readers of Deirdre's blogs will also know far more than I on economic matters. My guilt, however, stems also from having promised Deirdre I would do my best to keep the blogging happening, and having so far done less than my best in the face of my fear.

Although I think about changing the economic system almost constantly I feel I have a dearth of conceptual knowledge that allows me to draw on a newsworthy item, for example, and argue the new economic points in a way that might enlighten readers. Or any way at all.

What I am trying to do in my life however, is to find and realise new economic ideas and practices, and practise them.

Tonight I took part in one of my Savings Pool meetings by phone (I belong to two since I moved recently; one in Christchurch that I started with and now, as well, one in Ashburton which is nearer to where I am currently living.) During an extended conversation about a proposed change to the current way of calculating 'reciprocity points', it hit me just how much we are building this new system. We don't know how it works perfectly or even if it works perfectly, but how we figure it out is in the trying.

My Pool in Christchurch is about to knock off its first mortgage and my Pool in Ashburton is going to put up some dosh and I am going to be the conduit between Pools. Effectively some money will be lent to me and I will lend it on. It's real small fry in the financial markets, let's face it, but boy does it feel good to be doing community lending. To get that family out of paying interest to the bank and to be supporting each other. To be using money collectively to benefit each other.

And learning by doing is how a lot of this new economic stuff is going to have to happen. Abstract concepts are great until they hit the pavement - ole Einstein knew what he was on about when he told us that in theory, theory and practice are the same, but in practice, they are not!

My theory is that if I practise writing blogs more, my New Economic theory will become more practised and I might end up writing something y'all wanna read! Here's hoping...

How to start a whole system shift in the political economy


If we don't like predatory capitalism and we don't like socialism, what do we want? This is what Gar Alperovitz of The Next System has asked. Many in the climate emergency movement have also called for ideas for a new economy. While some of the ideas are expanded elsewhere, here is a summary of what we believe is necessary:-

1. Leave the existing currency alone. It is what Bernard Lietaer calls a yang currency and needs to be balanced with a yin currency. So many things are wrong with the system it is quicker and better to start again. But the trick is to find how.

2. Elect a Community Board. Appoint hapu and/or iwi representatives. This board guides the process of decentralisation of energy and many other systems previously centralised and vulnerable to shock. They decide what is important for your area in the way of infrastructure for your local resilience – a functioning water system, a port, a roading system, a local radio station, a micro electricity grid, Local Area Networks for internet. They are responsible for planning and community development.

3. Elect a Currency Board, responsible for designing and issuing the currency and keeping it stable. It will eventually become a community bank. These people must be willing to communicate with and cooperate with all the other neighbouring Currency Boards. You can see how important the elections are! This Committee will create a new natural currency that decays by design. They will decide if it will be digital or notes. They will ensure the notes are secure and decide on the rate of decay of the currency and how much to issue in order to avoid inflation.

4. Elect a Land and Resources Board and appoint hapu and/or iwi representatives with knowledge of local land stories, Treaty settlements, sensitive land that is not back under iwi control. These people work with any existing land trusts and decide on what land to buy to put into the Community Land Trust. They first seek council cooperation to put council owned land into their trust. They also work with any local cooperative to ensure the land they use goes into the CLT. Then they make recommendations to the Monetary Committee for suitable properties to buy up with new money. They also monitor local resources – water, fish, forests, minerals and set rules for sustainable use of the commons.

A Lot of Elections are needed

It seems like a lot of elections, but they are important because you need plenty of elected people to act as checks and balances on the other boards. This is big stuff you are dealing with. Each small board has a range of vital functions we are not used to at this level, and it is critical to avoid corruption.

Decide that your Community Board will function as a self-governing local entity, possibly serving a population of 5000 – 25,000 people. Know that you can both make and enforce your local rules, especially rules relating to your currency and your rental gathering. Resist interference from national government in matters you believe are just local matters. Tell them to go away. You will help them later when your own currency and revenue schemes are scaled up. (See Declaration of Interdependence for rights and responsibilities of local communities)

Put it into action

The next phase is for the Currency Board to spend the new currency into existencein one of four ways: 

a. to pay for labour and materials for adapting and maintaining infrastructure – the ones decided by the Community Board. Or you could spend it into existence to pay part of the salary of bank staff. Or a Citizens Dividend for a start? Or all three?

b. To pay part of the salary of  staff in the new currency.

c. To distribute a small Citizens Dividend. 

d. To buy land for the Community Land Trust.

If you can employ staff, get them to persuade your local businesses to accept the new currency for payment.

The Land and Resources Board will decide which land you want to put into community ownership first. Is it bare land or already built on? Will you insist on compulsory purchases? Is there a local factory or business in your district that has privatised part of your commons? (minerals, intellectual property, water, knowledge, public infrastructure). What powers do you want to purchase land of those who are polluting the biosphere?

5. Employ a valuer to set up a Land Rental Index. Accept only the new currency as payment.

6. Compile and maintain of directory of local citizens, including all children. Each will be eligible to share the rents from the use of the commons.

7. Have your Community Board communicate at the earliest possible juncture with neighbouring governance units. Ask yourself at what stage will you need to cooperate with other boards for roading, sewerage, water supply, transport, stormwater infrastructure. Be sympathetic to your local council when they have rating (local tax) arrears and use it as a bargaining tool, so your citizens can pay their rates in the new currency.

8. Employ participatory budgeting. The decision about whether to spend new revenue on infrastructure, administration or on Citizens Dividends will be done at a public meeting only. Establish the principle of community participation in budgeting right from the start. There will always be a tension between building essential infrastructure and giving out Citizens Dividends. Some get really attached to their dividends. Since Alaska doesn’t have participatory budgeting and people love their dividends so much, Alaska’s system isn’t funding enough infrastructure.

Did banks apply for a patent to use money?

new-nz-moneySo is money part of the commons?

Money is a clever human invention designed to be a medium of exchange. Everyone agrees to accept money because they know that other people trust it too. Unfortunately many centuries ago, governments started to accept bank credit as money. And when they accepted bank money for taxes, they either consciously or unconsciously gave banks a patent banks didn’t apply for or pay for. Nor did they check whether the invention was a working model. If they had done so they would never have granted the patent.

So we somehow allowed money to be lent into circulation with interest, causing a competitive system and a scarcity mentality where some amount of bankruptcy is inevitable. What’s more the patent had no termination date.

Banks continue this privilege of creating the country’s money supply (in the case of New Zealand it is at least 98.5% of our total money supply). So we gave banks the monopoly on money creation, didn’t tell the people and didn’t charge the banks a bean.

Is it government revenue, tax or what?

A discussion led by Phil Stevens on terminology.

Sin taxes are taxes, but otherwise we should call it rent or royalties. There is a widespread belief that tax or borrowing is the only way governments can get money and it is false because governments can create money. It is just that 98% of our money is created by private banks.

There are a number of mantras that are equally false but have become the dominant discourse – e.g. that a surplus is good. Professor Steve Keen and others have explained it isn't true but if you say it often enough people believe it. What is income tax then? Phil answers it is theft.