We have the biggest political challenge of the 21st century to solve inequality and climate change

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challenge_ident2007bWhen 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.

Henry George influenced a movement, now reviving

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Alanna and Deirdre at pool - Version 3I have just returned from California where I attended a conference of the Council of Georgist Organisations and delivered a presentation on the Land Dollar.

I was one of four presenters in a session on Land and Money. I was invited by author Alanna Hartzok, (photo above with me) an amazingly vital and wise woman who seemed very well respected in the movement. My presentation offered a wholistic solution to the three issues and was generally well received, though some dismissed the money issue as secondary. We have a money system that leads to rising debt and a growth imperative on a finite planet which threatens to leave it uninhabitable for our grandchildren. Second we have a tax system that treats labour as scarce and land as infinite and this needs to be turned right side up. Otherwise the inequality will continue to get worse as those who seek to “own” land and resources will accumulate more wealth. Third we all need sufficient income for all but we have a welfare system that encourages lying about relationships, even to the point where couples live in different houses to get more benefit money. What sort of society are we aiming for when we disincentive intimacy and love? The slideshow I delivered is now online at http://tinyurl.com/ou9stc6.

First let me tell you about the elevator pitches on Georgism I tried. When asked in the hotel lift what the conference was about I sometimes blundered and sometimes succeeded. “What is Georgism?” was usually the question. “Well it’s a old movement you probably won’t have heard of. It’s based on the writings of a man called Henry George. He was a San Francisco journalist during the Depression of the 1870s and saw a lot of poverty. He believed the value of land rose because of the activities of the public and so the increase really belonged to the public. Basically the idea is for the public to recoup this rise in land value. And he effectively said you should pay for what you hold or take not for what you do or make. No income tax but a land tax. At this stage the person said “Oh he must have been a good thinker. Sounds fair enough” or something like that.

IMG_1720And that is where the elevator usually stopped. That one worked. I was also asked the same question by a woman I befriended on a Los Angeles bus tour but I botched my answer completely. I started off saying we believed the land belonged to everyone and all the minerals, fish, water, trees etc. After that I blundered on and naturally she didn’t light up.

Sometimes people would ask why hasn’t the movement made much progress? And it is sad. So many Georgists have lived and died without seeing change. But, like the monetary reformers who followed Major Douglas, they have continued staunchly on till their eighties, loyal to the end. Their numbers dwindle and they speak more and more to themselves. At this session as will the Social Credit movement during its 60th anniversary in Christchurch next month, we had a time remembering those who had passed on the previous year. (I must say I think I heard one older woman report she had been president of her little society for 50 years, hope I was hearing wrong)

I met many who had taught courses at Henry George Schools for decades. They know that wealth is accumulated by monopolising the land and all its bounties. They weep to see the cheating society we have all become, pocketing the unearned gains from rising land prices. Their knowledge of the money issue varies. Dan Sullivan, the president of the council, attends the Modern Monetary Institute gatherings and was a fellow presenter. Many understand that if we create money as interest bearing debt we add another parasite. As Dan said “If you kill one parasite the other grows larger. You have to tackle them both together”.

One blog post can’t do justice to the variety of competent speakers. We had Peter Barnes, the author of “Who owns the Sky” tackling the twin issues of inequality and climate change. He said “Recycle the rent is a better term than tax the land”, as did other speakers. A giant Rent Recycling Fund should be redistributed as a dividend. He thinks it could be $5000 a year, enough to revive the middle class.

A young women PhD graduate had studied the man who influenced Henry George and gave an excellent talk on the geneology of the ideas.

The older Georgists were all greatly heartened by the infusion and energy of the new young men who have come into the movement. Two came, I believe, from working on reintroducing an inheritance tax, and the others arrived simply through trying to find a solution to inequality and environmental issues. They were self taught from the web and found their own way there. They were obviously struggling financially. I hear five of them shared a room. Karl Fitzgerald, of Prosper Australia and one of only five people worldwide working full time for the movement helped me greatly and seems to be a mentor for the new blood, all of whom are on the Facebook group called LVT.

Of course the group should be called something else but that is for another day… The session on campaigning was speakers from another movement. Hopefully next time there will be better teaching on soundbites, controlling the language, controlling the images, writing media statements, working with bureaucrats and journalists.

Next year the conference will be held in Detroit and for it the Council of Georgist Organisations will combine with the International Union for Land Value Taxation. So let’s make sure we get someone there from New Zealand.

(Second Photo: Peter Barnes with a Canadian Green Party man, Erich Jacoby-Hawkins)

An open letter to Helen Clark UNDP re climate and the economy

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searching-blindfolded-man

Late last night I engaged with you in 140 character tweets on the topic of climate and the economy. You were expressing the strong desire that we can have economic growth at the same time as halting climate change. And I pointed out that unless and until you reform the money system you are going to get a growth imperative built into the economy.

Helen, I believe the future of life on the earth depends on people like me pointing this out to people like you. There are a great many people wanting the same thing – a thriving economy AND a liveable climate. We need it desperately.

I see that your current meeting is another high powered one. Called The Global Commission on Climate and the Economy it has on it the Chairman of the Bank of America and the former chairman of the China Development Bank, the Vice Chairman of Deutsche Bank Group, as well as someone from the International Energy Agency with the UN Special Envoy on Climate Change. Nicholas Stern is there and so is a trade union representative as well as many ex Prime Ministers.

I see the purpose of this Commission is to “analyse and communicate the economic benefits and costs of acting on climate change.”

It looks as though the plan is to go down the path of green growth, to change towards sustainable energy sources. That is what economist Nicholas Stern and many others want. It is a good goal but not enough. It is just too limited.

But that is like mopping up a leaky pipe without stopping it leaking. It doesn’t get to the core of the problem.

What the bankers on your committee won’t tell you is that the function of banks is to create money and create it as interest bearing debt. You must know that having been Prime Minister of New Zealand for nine years. The country’s money supply comes into existence every time a bank makes a loan and disappears every time a loan is paid back. But it must keep on increasing. That’s the design of it.

What you have probably never had time to find out in your busy life is that when a bank creates the principle but not the interest, there is not enough total money in the system to pay off the debt and the interest. So someone has to get another loan. This increases the money supply and the money supply can’t be bigger than the number of trades in an economy. So the economy has to grow. See the Parable of the Eleventh Round for a story to illustrate this.

That is the growth imperative. It is built in to the current dysfunctional money system. You can’t have a thriving economy without growth in this system. All the time there is pressure to grow the total number of exchanges in the economy. And it can’t be done on a finite planet. Christchurch is helping our GDP grow because it had an earthquake. The economy grows when tobacco consumption or gambling rise. The economy grows when dairy farmers pollute the rivers with their runoff. Stupid.

This is not just debt money but it is interest bearing debt money. There is a world of difference. The latter has many other damaging and negative consequences like rising debt, instability and wealth concentration.

But let’s concentrate on the growth imperative.

Over the last couple of years there have been two excellent articles written by economists from the IMF and by economists from the Bank of England. Michael Kumhof of the IMF subsequently talks at a January 2013 seminar on Financial Reform for a Sustainable Economy here. Economist and former money trader Bernard Lietaer co-author of a Club of Rome book called Money the Missing Link in Sustainability speaks at the same seminar.

Gosh it is sad. Here you are at this high powered meeting of bankers, ex and current politicians, energy experts, CEOs of multinationals seeing if you can stop climate change without damaging economies. You are trying to find a way to get a thriving post fossil fuel economy and yet you are still working blindly. The paradigm of creating money is just not within your vision. The idea of radically reforming the tax system is probably far from member’s minds. Sad.

Look around the room and think “Who among you know that if we go on blindly allowing banks to create money as interest bearing debt we are never, never going to get sustainability?” Tragic.

And whatever decisions you make at this Commission, I hope you get on to the issue of tax policies. Can we in fact have a sustainable economy while we fail to tax the monopoly use of the commons – land, natural resources and the cultural commons.

So it won’t be any use having a series of indicators on green growth (as does the OECD). They want to monitor the natural asset base. Well if there aren’t tax policies that protect that asset base that base will just deteriorate. Measuring is good, but you might as well implement tax policies that are going to protect that natural asset base in the first place.

Government Superannuation, Basic Income, Duplication and the Housing stock

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1280px-Eureka,_California_two_yellow_housesUp till today I always thought the Government Superannuation was the nearest thing we have to a Basic Income for over 65s. It was unconditional and was given to all in that age group.

But I was wrong. Today I heard from a friend on Government Superannuation who has just had to pay for a second toilet (she chose a compost toilet), a new letterbox, a second electricity meter and a new shower. She had to do this because otherwise Work and Income would have cut her Government Superannuation.

Why? Because she is retired, drawing Government Superannuation and owns a biggish house near a shopping centre. A few months ago a recently retired friend came to live in her back building and is doing it up. They have known each other for zonks and being sociable creatures, just wanted company. They both enjoy the same movies and books, both cook well and their conversation is stimulating.

My friend’s superannuation is $366.94 a week living alone but the single, sharing payment is $338.71 a week. Both of them would be deemed sharing if they shared a toilet, letterbox, electricity bill and shower. So the house will now have two of each.

Furthermore, there is a third category from Work and Income and that is married, civil union or de facto and that is $282.26 a week.

What message does this send our society? That the government will not encourage friendship and sharing of facilities, and certainly not sexual intimacy, or even, dare I write it love.Old Couple

And if you think it doesn’t have housing implications, think again. The said male friend could well have taken up a whole house and section by himself and had a full single superannuation. Two houses, two sections, two letterboxes, two electricity meters is better than one? Of course not.

I think of the retired single people living in Christchurch where the rentals are horrendous and people live in garages. I think of the Auckland housing bubble, exacerbated by this illogical Work and Income policy. So not only do we have more houses than we otherwise would have had, but this puts up the demand for houses and so house prices rise.

This has been happening of course with younger beneficiaries for decades. Two single parents get together. Both are on the Domestic Purposes Benefit and there is a major financial disincentive to share a single house, a single washing machine, car etc etc.

So not only does the lack of a Basic Income (unconditional, whatever your living arrangements are) discourage intimacy and thrift, but it expands our cities towards ever more green fields, costs us in infrastructure of sewerage, water and stormwater, but it leaves the poor to fend for themselves in caravans and garages or to share with other families.

Why not create a national currency at local level?

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upmapOver a period of two years or more we have proposed:

1. A second national currency. The currency to be issued by Treasury, spent into existence to buy land. The new currency will have no other taxes than land rents, natural resource rents and taxes on bads. We aim to move to a tax system that taxes the monopoly use of the commons rather than labour and sales. Some revenue will be distributed as a Citizens Dividend to all citizens who have lived there for a year or more, the rest will be shared by all levels of government. We advocate a Land Rental Index to be set up in each area, with land rents being adjusted annually according to the index. Land rentals are relatively very stable over time. It is only when there is a major event like and earthquake that they decline or when a railway is put in or a labour intensive business arrives that they rise more than just a tiny bit. The new money would be good for the payment of rates and taxes. No further rates would be payable.

2. We have occasionally advocated a Christchurch currency and an Auckland currency created by spending it into existence to buy land. This would require complete cooperation from the central government as legislation would be needed to make it free of income tax, GST and company tax as before. Rents would be shared as a small Citizens Dividend. The rest would be shared with central government. So a similar design but a city currency as well as a national one.

3. Then very recently we went a step further and suggested that Local Boards (the Auckland supercity calls them this and there are 21 Local Boards as shown on graphic) create the currency, spend it into existence to buy land. A monetary authority will have to be set up to ensure there is no inflation. Revenue from land rents and some natural resource rents can be gathered by Local Boards and first distributed to the local citizens then the rest used at local board level and then sent up the line to supercity and to central government. Supercities would have power to impose taxes on water pollution e.g. leaching of nitrates that uses the commons of the aquifers and rivers. (and to tax the use of water for commercial purposes.)

This option 3 would require several currencies to co-exist. The usual NZ dollar, the new NZ dollar, the supercity dollar and the Local Board dollar. We had considerable difficulties and confusion when discussing exchangeability of currencies.

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4. Option 4 arrived a couple of days after I spoke to a meeting at a Motueka ecovillage in response to the questions and problems. This one is simpler and is like the formation of a river from the small streams to the river to the sea. Create the new national currency at Local Board level and pass it up the line. Local Boards would set up a Land Committee to decide which land should be bought first. Each local board might decide differently in consultation with its community. Every decision has the right to be vetoed by the local hapu or iwi and where applicable the Maori Land Court should be involved. You would also need a local committee (perhaps the same one) to administer a Land Rental Index or where appropriate because of different desirabilities of sites e.g. Wellington hill suburbs for sun. You would also need a local Monetary Authority to monitor inflation. It would work closely with the Supercity Monetary Authority and the Treasury Monetary Authority to ensure there is no inflation and that no local board would issue too much or too little new money. These are such important entities that they would have to be voted in.

There are so many issues to comment on here, it would be really good to have a general discussion. Then we can perhaps divide up the discussions. Option 4 finally gives real powers to the local economy, which is in line with our policy. The land board may, after consultation with the local community, choose a local business which needs capital, or choose undeveloped land owned by absentee speculators or the local iwi may have very strong preferences.

For instance, if the local committee chose five sections each valued at $200,000 it would create $1m of national currency. If the committee chose to purchase the land of a speculator, that speculator, seeing no future, might sell the lease and thus release the land for genuine use. Many with mortgages will want their mortgage reduced and, because the new currency is legal tender, the bank would have to accept it for paying off a mortgage. Or the committee may be persuaded that a local business needed capital to employ local labour and grow. A community land trust might ask for their land to be bought so they can take land out of the market. This would enable them to sell houses to younger people to join their village, as otherwise the cost would be unaffordable. They could then use the considerable injection of capital to develop their labour intensive businesses and the ones that use local materials.

Then the monetary authority, in conjunction with the monetary authorities of the supercities and the government would make sure the local board did not issue more money than it was allowed, as inflation must be kept strictly under control.images-1There could be problems with certain rogue local boards. Either they issued too much money and wouldn’t cooperate with the monetary authorities elsewhere, or their leadership was questionable. In that case there should be provision in law to instal a Commissioner until the Board’s administration improved.

In models 1-3 we have designed in a circulation incentive in the form of a dated currency. However perhaps in model 4, since all money flows downstream from local to central, there may be no need of this.

My questions are (and you will raise plenty too):

  1. Exchangeability with the national currency NZ dollar? We had it as they are issued at par and redeemed at par and in between the value changes according to the market. Some have argued there should be no exchangeability with the old national currency.
  2. Will the creation of a second national currency at local board level stimulate the local economy?
  3. How does this all line up with the Maori Land Trust boards and Incorporations situation?
  4. How would the public be protected from local board that go rogue and how would the wider public ensure that local boards representatives can deal with this level of responsibility?

Now there is one more thing that comes before any of this. Councils and Government should never sell land. The idea of the government buying up the land in the Green Frame and then selling it off into private hands is unacceptable. They should keep it and auction the leases to the highest bidder, then share that revenue with the public (via a Citizens Dividend) and the central government. This should be entrenched in law somehow.

Meanwhile a private bidder Auckland City Council has been offered $75,000,000 for a council car park. What a dreadful thing that would be if the council sold off this prime city land for cars to park and for a private enterprise to gain, both in car parking, and in capital gain. As they said in a The Nation programme on TV3, they are developing around traffic hubs. Of course. That means the public pays for the transport infrastructure and private land “owners” benefit from rising land values. Not fair, all wrong. Let logic prevail!

Reservations about Crown Leasehold Land. There are many who will have reservations about the government or the local board buying up their land. The alternative we used to have was that the Government pays you for your land, and the title of your property then bears a covenant, an obligation to pay a ground rent from then on, whoever owns the land. While it is more difficult to explain to the public, a covenant of this nature would give much more peace of mind when it comes to secure tenure of the land. “Leasehold title” has such a bad reputation that it is difficult to explain there are no sudden rent rises if the rent is linked to an index and that the tenure is for a lifetime, with rights that your descendants can get the next lease. No matter how much this is explained it may be better to have a covenant.

Sharing the rents brings social justice – solution to the Auckland housing crisis

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imagesDuring Parliament’s question time there are always a lot of questions about house affordability, especially in Auckland. The National government’s solution to rising house prices is just “release more land”. And the Prime Minister usually replies that home affordability was worse when Labour was in government because that included the period leading up to the Global Financial Crisis. Stalemate. Election year biffo. They then go on to questions about poverty, especially child poverty. In New Zealand, ever since Helen Clark introduced an income support scheme called Working for Families anti-poverty groups have rightly pointed out that as it only goes to families in work, children of beneficiaries are the ones that miss out and that is unfair.

Sadly nobody in Parliament ever raises the issue that when “land owners” monopolise land without paying a full rent to the public for the privilege, the rental they should have paid just capitalises into the market value of their homes. Rent is thus privately captured not publicly captured. That capital gain doesn’t belong to them. The very meaning of “freehold” land is land without rent. When settlers came to New Zealand from England in the late 1800s what they wanted was to stand on a piece of land and know that a landlord couldn’t push them off. But the English colonists brought with them their very entrenched legal system of land ownership and imposed on the Maori a strange concept they called “ownership of land”. It was the land tenure system together with the English banking system which was at the very heart of the colonisation process.

Leaving aside the banking system for the moment, let’s concentrate on the land tenure system. When land is held in common, land tenure is about rights to use land. What the settlers really wanted was security of tenure and they wrongly equated this with a freehold land ownership arrangement. Indigenous people share the rights to use the land with others in their iwi or tribe or in their hapu or subtribe through a complicated system different in each iwi or hapu. Colonisation changed the land tenure system and introduced commercial banks.

We are coming up to a general election and the Labour Party, Mana and the Internet Party are all showing concern to engage and enrol the one million non-voters from last election. The Internet Party rightly makes it easy to join a party and participate, through their clever use of smartphone apps and discussion websites.

But what better way to engage young disaffected voters than to share the land rents? Wouldn’t they be delighted it a political party said it was going to charge a full land rental and share it with them by giving them a Citizens Dividend from time to time?

Let’s have a look at the home values in central Auckland suburbs for a start. Parnell, Mission Bay, Mt Eden, Epsom, Herne Bay, Ponsonby and Grey Lynn houses have risen in value by probably an annual rate of exceeding 10% over the last year. In some cases it is 14%, but let’s take the lower value. An article the other day in the Weekend Herald showed a three bedroom home in Grey Lynn for sale at $895,000 and the subsequent text showed it had probably risen at least $103,000 in the last year. What land tax did that owner pay? Rates contain land tax but actually everyone pays on their capital value these days. (by legislation when the supercity was formed, no choice these days like we used to have). So if every home in the inner suburbs has a capital value rise of say an average of $100,000, just think of that accumulated rental which has been privately captured in the inner Auckland suburbs. This rental rightly belongs to the public because it is government both central and local that has paid for the infrastructure, the hospitals, schools and parks and it is the public which has provided the inner city shops and businesses and activities. Suppose there are 100,000 homes in those inner suburbs each rising by $100,000 in a year. That is a capital gain of $10,000,000,000. Yes it is $10 billion which rightly belongs to the public and we haven’t even tried to calculate the rising value of the CBD and Parnell and Newmarket and Ponsonby shops and offices. This total will be far higher.

Dividing this three-way between central and local government and the 4.4m citizens of New Zealand is the next challenge. But for electoral purposes it would make very good sense to give out a citizens dividend straight away. Let’s, for instance, use $4.4 billion of the $10 billion. That is $1000 per citizen. When dependents get it, the money is taken by the designated carer, usually a woman. So a woman with three children would get $4000 a year from this dividend. Nice one. A young solo mother in Northland or Hastings or Greymouth. Since she is on a benefit she doesn’t get Working for Families. She spends it on the basics of food. The next dividend would bring more. When land rents are shared everyone gains. Labour spokesperson on Welfare Jacinda Ardern would not have to think up anything more complicated than this to right the wrong of children in poverty. It would answer the “Feed the Children” plea of The Mana Party.

I have discovered Fred Harrison’s site http://www.sharetherents.org/ where his videos tell a great many stories about the value of sharing the land rent. Fred Harrison is a long time campaigner for sharing land rents.

Labour and the Greens both go into the election advocating a Capital Gains Tax on property that isn’t the family home. Unfortunately the Greens have chosen a 15% Capital Gains Tax. That means when a house is sold (and only then) the Government gets a small fraction of the total rent. The property “owner” gets to keep the 85% that rightly belongs to the public. Well I guess it is a start, but honestly it is an extremely timid policy when you see the whole logic of sharing the rents.

Nobody in this whole debate has raised the issue of how many vacant sections there are in Auckland. If speculators are sitting on sections and not paying much (the council even slashes their rates) then naturally they will continue to speculate. A Capital Gains Tax will only delay the sale even further. You must make people pay for the privilege of “owning” land, or monopolising it. If speculators had to pay a full land rental rather than reduced rates, that would spur them into action. Either they would build or they would sell.

A Christchurch currency would help solve the budget problems and avoid asset sales or rates rises

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chch-cbd-plan-620How 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.