How land barons, industrialists and bankers corrupted economics


The so-called discipline of economics has been systematically corrupted in two major ways: first to get rid of the word ‘land’ from the very language of economics and second to downplay, omit or misrepresent any discussion of the words ‘credit’, ‘banking’ and ‘money’. They shamelessly describe banks as intermediaries when they know this is a minor function and that bank’s major function is money creation.  Fortunately the story behind the flagrant omission of land as a factor of production has now emerged, while the money story remains for some enterprising researcher in the future, (though various DVDs and stories hint in that direction).

The Corruption of Economics by Mason Gaffney and Fred Harrison, while free online, is hardly known; as of December 2015 only three New Zealand university libraries and the Auckland Public Library held copies. Yet in it is a very important story.

Fred Harrison describes the phenomenon of Henry George, the San Francisco journalist who took the world by storm with his book Progress and Poverty in 1879, in which he argues that the benefits of land ownership must be shared by all and that a single tax is needed to fund government –  a land tax. The factors of production are land, capital and labour. Untax labour and tax land was the cry. Poverty could be beaten. Social justice was possible!

Of Henry George influential economic historian John Kenneth Galbraith writes,

In his time and even into the 1920s and 1930s Henry George was the most widely read of American economic writers both at home and in Europe. He was, indeed, one of the most widely read of Americans. Progress and Poverty… in various editions and reprintings… had a circulation in the millions.

Unlike many writers, Henry George didn’t stop there. He took his message of hope everywhere he could travel – across America and to England, New Zealand, Australia, Scotland and Ireland.  He turned political. Seven years after his book came out in remote California, in 1886 he narrowly missed out on being elected Mayor of New York, outpolling Teddy Roosevelt.  During the 1890s George, Henry George was the third most famous American, after Mark Twain and Thomas Edison. Ten years after Progress and Poverty he was influencing a radical wing of the British Liberal Party. He was read by semi-literate workers from Birmingham, Alabama to Liverpool, England. His Single Tax was understood by peasants in the remotest crofts of Scotland and Ireland.

Gaffney’s section of the book outlines how certain rich land barons, industrialists and bankers funded influential universities in America and proceeded to change the direction of their economics departments. He names names at every turn, wading through presidents and funders of many prestigious universities. In particular, Gaffney, an economist himself, names the economists bought  to discredit Henry George’s theories, their debates with George and their papers written over many decades.

‘George’s ideas were carried worldwide by such towering figures as Lloyd George in England, Leo Tolstoy and Alexander Kerensky in Russia, Sun Yat-sen in China, hundreds of local and state and a few power national politicians in both Canada and the USA, Billy Hughes in Australia, Rolland O’Regan in New Zealand, Chaim Weizmann in Palestine, Francisco Madero in Mexico, and many others in Denmark, South Africa and around the world. In England Lloyd George’s budget speech of 1909 reads in part as though written by Henry George himself. Some of Winston Churchill’s speeches were written by Georgist ghosts.’

When he died there were 100,000 at his funeral.

The wealthy and influential just couldn’t let the dangerous ideas spread. Their privileged position was gravely threatened. Henry George must be stopped. But the strategy had to be subtle. What better route than by using their money to influence the supposed fount of all knowledge, the universities? That would then indoctrinate journalists and the general public. Nice one!

The story explains how, for their wealthy paymasters, academics corrupted the language to subsume land under capital as a factor of production. They redefined rent, and created a jargon to confuse public debate. Harrison says, ‘For a century they have taken people down blind alleys with abstract models and algebraic equations. Economics became detached from the real world in the course of the twentieth century.’

Yes, the wealthy paid money to buy scholars to pervert the science.

Gaffney’s rich, whimsical language is a joy to read. He writes to Harrison,

‘Systematic, universal brainwashing is the crime, tendentious mental conditioning calculated to mislead students, to impoverish their mental ability, to bend their minds to the service of a system that funnels power and wealth to a parasitic minority.’

He painstakingly describes the funding of various American universities by such figures as JP Morgan and John D Rockefeller who choose the President who obligingly appoints suitable head economists to key academic positions. Gaffney trawls through the writings of key figures in neoclassical economics over many decades, quoting numerous pieces attacking Henry George and his Single Tax proposal. Several neoclassical economists actually debated George in person. These early neoclassical economists were J B Clark, Philip Wicksteed, Alfred Marshall, ERA Seligman and Francis A Walker, who each contributed something to ‘addle, baffle, boggle and dazzle the laity’.  J B Clark, for instance, has a bibliography that quotes at least 24 works directed against George over a span of 28 years.

Banker JP Morgan funnelled his wealth through Seth Low to Columbia University in New York, and John D Rockefeller did the same in Chicago. Ezra Cornell, who Gaffney says once held one million acres of land, creator of the Western Union Monopoly, founded Cornell University in Ithaca, New York State. Leland Stanford of Southern Pacific Railroad (really a land company), funded Stanford University. Johns Hopkins University in Baltimore, Maryland was endowed by Johns Hopkins, millionaire merchant and investor.

Each of these benefactors appointed their own president. Hopkins appointed Daniel Gilman as President. Out of that university came eleven Presidents of the American Economics Association. Gilman had a natural hatred of Henry George as he had been hounded out of Berkeley by the crusading young journalist when he uncovered ‘Gilman’s improper diversion of the Morrill Act funds.’

In his chapter entitled The Chicago School Poison, Gaffney writes:

John D Rockefeller funded Chicago spectacularly in 1892, and started raiding other campuses by raising salaries. Rockefeller picked the first President, William Rainey Harper. Harper picked the first economist, J Laurence Laughlin, from Andrew Dickson White’s Cornell (he liked Laughlin’s rigid conservative and anti-populist views. Harper drove out Veblen in 1906, then died, leaving Laughlin in charge of economics until he retired in 1916. He passed the torch to J. M. Clark, the son and collaborator of J.B.Clark. Frank Knight came to Chicago in 1917 from Laughlin’s Cornell. The apostolic succession is very clear from Rockefeller to Harper to Laughlin to Clark to Knight. …Chicago to this day is still the lengthened shadow of John D Rockefeller.

In terms of numbers, and intensity of feeling generated, Knight probably produced more neoclassical economists than anyone in history. He made no secret of his firm opposition to Henry George and ideas that might comfort Georgists. His enduring interest and his viewpoint are clear from the title “Fallacies in the Single Tax” (1953)

Who would have thought nowadays that Henry George had to be neutralised? After all, he wrote his books and did his public speaking and touring from 1870 to 1897.

It was in these five Universities that neoclassical economics developed to the stage where it has almost completely taken over from classical economics, and it was out of these universities that the American Association of Economists was founded in 1885 by Ely, Walker, Edwin Seligman and others. He notes they did not welcome ‘reformers’.

In addition, Richard Ely retired after a long career a John Hopkins University, to establish what he called The Institute for Research in Land and Public Utilities whose purpose was ‘to investigate all problems connected with land taxation’. Contributors included utilities, railways, building and loan associations, land companies, lumbermen, farmers, bankers, lawyers and insurance men.

At least two of these academics were wealthy – E R A Seligman of Columbia came from a wealthy banking family. Richard Ely, who was known as the ‘Dean of American economists,’ was a well-connected land speculator, making a small fortune in Wisconsin real estate. He spent his life rationalising land speculation.

To give you another taste of Gaffney (take a big breath): ‘To most modern readers, probably George seems too minor a figure to have warranted such an extreme reaction. This impression is a measure of the neo-classicals’ success; it is what they sought to make of him. It took a generation, but by 1930 they had succeeded in reducing him in the public mind. In the process of succeeding, however, they emasculated the discipline, impoverished economic thought, muddled the minds of countless students, rationalised free-riding by landowners, took dignity from labour, rationalised chronic unemployment, hobbled us with today’s counterproductive tax tangle, marginalised the obvious alternative system of public finance, shattered our sense of community, subverted a rising economic democracy for the benefit of rent-takers and led us into becoming an increasingly nasty and dangerously divided plutocracy.’

Let’s turn a blind eye to money too

The omission of the words credit, banking and money or the downright distortion of facts in university teaching was also no accident. The publishing in 1906 of Silvio Gesell’s book The Natural Economic Order sparked a decades-long movement. Gesell has been described by Irving Fisher as a ‘strangely neglected prophet’. John Maynard Keynes wrote, ‘I believe that the future will learn more from the spirit of Gesell than from that of Marx.’

For centuries American politicians and British politicians had been treating money creation as a political issue.Thomas Jefferson and Abraham Lincoln are two who knew that banks create money. But after the arrival of neoclassical economics in the late nineteenth century, things started to change. To please the banks who profit from land ownership, mention of the words ‘money’, ‘credit’ and ‘banking’ was also omitted, especially after the widespread influence of both Major CH Douglas from the 1920s and Silvio Gesell’s advocacy of a decaying currency. It was a bit worrying for banks that the Social Credit Party in New Zealand won 12% of the vote in 1953. So a Royal Commission on Banking and Credit was set up. In 1956 it found that banks were ‘banks of issue as well as banks of deposit’. However, thanks to their spin doctors, politicians their  managed to misrepresent the findings well enough for the public to believe the Commission had ruled the opposite. Who knows what mischief went on behind the scenes? Universities fell into line. Academic teaching on money creation was reduced to a brazenly inaccurate paragraph or two, misleading generations of students. But money is really created by private banks as interest-bearing debt. This writes in a growth imperative, ensuring we depend on exponentially growing debt and continue to monetise and privatise the commons.

If universities are a vehicle for spreading misinformation about how money is created we can more easily understand the simple and chilling statement of Mayer Amschel Rothschild , “Let me issue and control a nation’s money and I care not who writes the laws.”

Predicting the Global Financial Crisis

The corruption of economics in universities is no trivial matter. Economic crises are serious matter involving loss of homes, savings and jobs and economists need the right tools to predict them so they can deal with them. Tragically only a handful of economists predicted the Global Financial Crisis  of 2007-8 and the Queen of England was known to ask, ‘Why didn’t anyone see this coming?’ Professor Steve Keen in his book Debunking Economics spends a chapter summarising the work of a Dutch economist, Dr Dirk Bezemer. After laying down certain criteria for selection, he concludes there were only 12 (two published together). He named Dean Baker, Wynne Godley, Fred Harrison (UK), Michael Hudson, Eric Janszen, Steve Keen (Australia), Jakob Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer, Nouriel Roubini, Peter Schiff and Robert Shiller. Subsequently Bezemer had the list at three dozen, but out of a total profession of at least 20,000 it is a very dismal record. If any other profession (e.g medicine) was so wrong in something that affected millions they would be sued. The universities who train economists should hang their heads in shame.

Hyman Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. He said we moved from a hedging stage where risk is low to a speculative stage and finally to a Ponzi stage. A key indicator was the growth of private debt as a fraction of GDP. The “Bezemer 12” quoted above had in common that they were concerned with the distinction between the financial economy (making money from money) and the real economy. Keen wrote in 2009, “Unfortunately after the crisis everything being done by policy makers around the world is instead trying to restart private borrowing.” Sadly Wikipedia notes that while Minsky’s theories have enjoyed some popularity, they have had little influence in mainstream economics or in central bank policy.

These same people are among those now warning of a very much larger international financial collapse, as debt deflation takes hold and ongoing globalisation locks the global economy ever more tightly together. Economics is too important to be left to mistaught economists. The absence of good, reality-based economic theory in education leaves millions of environmental and social activists – along with the compassionate right – to flounder about helplessly trying to solve growing inequality and the climate crisis.

Challenging the universities
Tackling the veracity of university teaching in economics is no job for a quitter. In 2013 a retired engineer started on a mission when he read the Bank of England paper on money creation. Peter Morgan wrote to the Vice-Chancellor of Auckland University, Professor Ananish Chaudhuri:

‘The textbook used by the University of Auckland for its macroeconomics courses is Principles of Macroeconomics in New Zealand, by N. Gregory Mankiw, Debasis Bandyopadhyay and Paul Wooding. It contains several statements that are unequivocally fallacious. By way of example – by no means the only one in the textbook – the following is an example:

“Financial intermediaries are financial institutions through which savers can indirectly provide funds to borrowers.”’

He went on to quote from both the Royal Commission on Banking and Credit in New Zealand in 1956, but mostly from the Bank of England papers e.g. Banks are not intermediaries of loanable funds – and why this matters by Zoltan Jakab and Michael Kumhof

Back came his answer:-

“Dear Mr Morgan:

Thank you for your recent letter to the Vice Chancellor which has now been sent on to me via the Dean of the Business School.

First of all, thank you for taking the time to write.

I begin by noting that the questions you have raised go to the heart of the debate raging around the world. There is no question that in the aftermath of the GFC, the state of macroeconomics globally is in a flux with possibly more questions than answers. As you must be well aware leading scholars as well as policy makers are currently engaged in a robust debate world-wide particularly as Greece and Germany enter into a stare-down which may result in the break-up of the European currency union.

Having said that let me make a few points:

First, the textbook at issue is the most popular textbook world-wide including most leading institutions of higher learning. Greg Mankiw is a leading scholar, a professor at Harvard (which I believe also teaches from this text) and was Chairman of George W. Bush’s Council of Economic Advisors. I expect that he is well aware of the state of the art in terms of both the theory and policy-making. There are local editions of this book written by leading scholars in those countries. The Australian edition was done by Joshua Gans of Melbourne and Stephen King (till recently Dean at Monash Business School). Their role is to provide a local perspective and local data but the major intellectual force is provided by Mankiw. It is important to understand that the scholarship in this area is still very much evolving and therefore a plausible counter-argument is that no matter which text-book we choose to use, it will suffer from some flaws and deficiencies.

Second, while authors do their best to keep up with evolving knowledge nevertheless it takes time to update textbook content, at least partly because it takes time to understand and absorb the lessons of history. As I noted above the state of macroeconomics is in a flux and new research needs to be integrated into future editions.

Third, I would disagree that the book contains fundamental errors. I think this may have more to do with differences in assumptions and philosophies rather than violations of some universally held truths. We and indeed all scholars welcome robust debate on such differences. They are part and parcel of the academic discourse. As the VC has already pointed out, at the end of the day, this is also an issue of academic freedom. I have absolutely no reservations about the use of this textbook in our degree program.”

So having acknowledged that economists have spent a fruitless seven years scratching their heads about what caused the GFC, or the crisis in Greece, the Head of Department, Professor Chaudhuri puts this major issue aside and declares the book valuable. He justifies using a textbook with fundamental inaccuracies by saying other universities are doing it too! In a subsequent letter he confesses that he is not an expert in monetary policy. They often do that –claim they are not a macroeconomist. This is rather like the head of a medical school saying he is not an expert in medicine or the head of an architecture school saying he is not an expert in building design. The sheer nerve of senior economists to think that they don’t need to come to grips with monetary policy when the world is awash with debt would be incomprehensible if one didn’t know their very jobs depend on their pulling the party line. Money is at the heart of economic life.

Perhaps we can get some clarity from Steve Keen here. In a 2014 blog, he explains the three options open to universities after the 2014 Bank of England paper that refuted the loanable funds model. ‘Now if I believed in the tooth fairy, I would hope this emphatic denunciation of the textbook model would cause macroeconomics lecturers to drastically revise their lectures for next week. But I’m too long in the tooth to have such a delusion. They’ll ignore it instead. Their dominant “tactic” – if I can call it that – will be ignorance itself: most economics lecturers won’t even know that the bank’s paper exists, and they will continue to teach from whatever textbook bible they’ve chosen to inflict upon their students. A secondary one will be to know of it, but ignore it, as they’ve ignored countless critiques of mainstream economics before. The third arrow in the quill, if they are challenged by students about it (hint hint!), will be to argue that the textbook story is a “useful parable” for beginning students, and a more realistic version is introduced in more advanced courses.’

He seriously doubts if the paper will cause senior economists to change their current position and explains that until you know that banks can create and cancel money, you will never be able to understand how demand rises and falls. ‘All the parables of conventional economics fly out the window once you know this. The level of economic activity now depends on the lending decisions of banks (and the repayment decisions of borrowers). If banks lend more rapidly, or if borrowers repay more slowly, there will be a boom; if the reverse, there will be a slump. If new loans simply make up for old ones being repaid, then there is no effect, but if new loans exceed repayment then aggregate demand will increase.’

The urgency of getting this right

If universities are failing us by misleading our young people, journalists and politicians, think how critical it is to reverse this. Naomi Klein says that the climate crisis came along at the just the wrong time – when neoclassical economics was at its zenith. No wonder there was a reluctance to do anything meaningful as it simply clashed with the dominant economic paradigm. She says, ‘Economics is at war with the planet’. According to many experts there is only a small window to reverse climate change, until 2017.

There is a long way to go to reverse public thinking. Neoclassical (or neoliberal) economics has a death like grip on us. In over a century the doctrine has succeeded in further privatising the commons, dismantling the state,  deregulating everything that moves and fooling the public over land and money. The economic theory that ignores the role of money and debt can’t possibly make sense of the economy in which we live. It should be jettisoned.

While the collapse of the global economy will be terribly painful and chaotic, it will certainly reduce carbon emissions dramatically. But as long as the economy holds up we need to get on our bikes and work. Whatever happens, no future economy should have the flaws we have now. It is time to get cracking, or as the sheep farmers of the South Island of New Zealand say – rattle our dags.  We can do it.

Do universities lead advances in economics?

During depressions great thinking is done, sometimes in universities, but more often not. Henry George, a journalist, wrote Progress and Poverty in response to abject poverty in San Francisco (1879 book), Silvio Gesell, a German businessman, wrote after an Argentinian depression of the 1880 and 1890s and John Maynard Keynes wrote after the Great Depression of the 1930s. As we descend into worldwide debt deflation today’s searchers now must urgently find and implement a new economic model. And that will involve a huge shift in thinking.

Keynes suggestions were widely adopted after the Great Depression. In 1933-4 Gesell’s currency was put into practice in a small town in Austria with spectacular results. People came from all over Europe to witness the ‘miracle of Wørgl’.  But it lasted a mere fifteen months, cut short by the influence of big banks over the Austrian government at the time, who made the ‘work certificates’ illegal. So despite considerable influence for three decades for his important thinking on currency design (a currency must only act as a medium of exchange and must rot like potatoes and rust like iron), Gesell is now all but forgotten. As central bankers grope helplessly for tools to stimulate the economy at the same time as controlling inflation, Gesell presents answers.

Gaffney’s description of how land barons, industrialists and bankers perverted university’s teaching, which in turn leads to  wrong government policy, is reminiscent of the story of the history of banking. Banks have been a powerful influence on governments ever since governments allowed banks to create credit that could be used to pay taxes. This may have happened in Europe centuries ago after the goldsmiths.

To add to our troubles universities, under the influence of neoclassical economists, have all but stopped teaching economic history so no one can study Gesell or George.

The tie-up between universities and neoclassical economists also influences the relationship of politicians to bankers. Nomi Prins in her landmark book All the Presidents Bankers sheds light on the symbiotic relationship of a century of American presidents with the top bankers of the country, and how elite bankers can even dictate foreign policy. The dust cover of her book says she ‘ushers us into the intimate world of exclusive clubs, vacation spots, and Ivy League universities that binds presidents and financiers. She unravels the multi-generational blood, intermarriage, and protege relationships that have confined national influence to a privileged cluster of people. These families and individuals recycle their power through elected office and private channels in Washington, DC.’

Bankers admit they create money

Of course the bankers themselves know better than the universities who prefer to be complicit in keeping the secret. Graham Towers, Governor of the Bank of Canada and Lord Josiah Stamp of the Bank of England have been quoted regularly in the monetary reform literature. Even in New Zealand in 1955 we had H W White, Chairman of the Associated Banks telling the Royal Commission on Banking and Credit:

“The banks do create money. They have been doing it for a long time, but they didn’t realise it, and they did not admit it.”

Minsky a good economist but missed Henry George and Silvio Gesell

Why Minsky matters : An Introduction to the Work of a Maverick Economist by Randall Wray.

My thoughts after reading this nice clear book are that Hyman Minsky, with his yearning for full employment, more equality and a stable financial system, would have revelled in the books of two non-economists – Henry George 1879 and Silvio Gesell 1906. Henry George’s writings would have given him answers to the eternal social justice conundrum and satisfied his curiosity about why Keynesian solutions tend to be inflationary. The route to full employment and more equality would then be staring him in the face. He wouldn’t  have had to struggle round arguing against a payroll tax when George had argued for a logical tax system so well. Minsky doesn’t quite get there. Wray merely implies he approached it when he said Minsky ‘did not see public purpose in discouraging work.’  And while he knew that boom and bust were inevitable, with exposure to Fred Harrison’s writings or those of Bernard Lietaer he would have understood the underlying causes.

Nor did Minsky get currency design, though he did say, ‘Anyone can create a currency. The problem is to get it accepted.’ Silvio Gesell would have provided a fundamental understanding of the importance of currency design. The idea that people can design currencies for different purposes is new to most people and, given Minsky’s mainstream education, he was probably never exposed to that. I think he would have been excited to read Gesell as it would have turned his knowledge of capital formation, interest rates, risk and banking upside down. But Minsky had to earn a living and couldn’t afford to stray this far from orthodox economic thinking. It was enough to argue against mainstream beliefs of macroeconomics like that the economy is naturally stable because the market moves it back to equilibrium. That was a life’s work.

Minsky is a clever mainstream economist, educated in universities that didn’t expose their students to Henry George or Silvio Gesell or even Bernard Lietaer. But within those limitations Minsky in 1987 predicted the explosion of home mortgage securitisation that eventually led to the Global Financial Crisis. He leaves us with a legacy of sentences and phrases like ‘Stability is destabilising’, ‘that which can be securitised will be securitised’, ’money manager capitalism’ and prescribes clear methods of reintroducing bank regulation. He explained debt on debt on debt layering, leveraged buyouts and many other otherwise obscure terms.

Well done Randall Wray for explaining the work of Hyman Minsky to the general public in such readable form. I am conscious that I have not read the original Minsky so hope I will not have been mistaken.

A land-backed domestic currency as a dual currency for New Zealand

This paper is the third in a series published here, and emerges after many discussions on the first two proposals.

A Land-backed Complementary National Currency Issued by Government 11/9/2012

 “Money is deeply and irretrievably implicated in the conversion of the land commons into private property, the final and defining stage of which is its reduction to the status of just another commodity that can be bought and sold.” Charles Eisenstein Sacred Economics


This paper develops the case for a second currency issued by government and proposes a contract where a land levy is paid to government in exchange for a newly created currency to pay for the land. It addresses both land and money together. It argues for a currency that has a built-in incentive to circulate fast to supplement the existing interest-bearing monoculture of a national currency. It introduces a local Citizens Dividend. Complementary currencies need to shift up a gear. To have any effect on unemployment they need to be issued in millions rather than hundreds of dollars. Such a currency will stabilise the price of property, cause a better type of prosperity and abundance, stimulate new industry, create new jobs and, together with other measures, protect the environment. It argues for a smooth gradual introduction of this dual currency system backed by land.

Starting point – Assumptions

1. “Government” means national government, local councils and community boards. All government is seen as one and each level of government is equally important. We assume local government and central government should be in constant negotiation with each other and they are friends not enemies.

2. That the health of the local economy and the health of the national economy are equally important. A win for one is a win for the other; a loss for one is a loss for the other.

3. Land is different from labour because land is a gift from nature. We did not create it. Because not everyone can occupy the same piece of land, those who occupy the most valuable land should compensate the rest of us for that privilege. But we should keep the fruits of our own labour. We aim to socialise land and privatise labour. Taxing labour and enterprise is counterproductive. We should be taxing the use of our precious resources instead.

4. The role of Government is to service each land site, with roads, schools, hospitals, medical services, electricity networks, education services, welfare, street lighting, sewage, storm water and water. Those who have exclusive use of a site should pay for the government services to that site. It is a full rental on that land.

5. That, because land is not an ordinary commodity and everyone has a right to land, no one should profit from owning it. Rises in land value cause more money to be created, and that results in inflation (not currently measured in the CPI). Inflation and deflation are undesirable and must be strenuously avoided.

6. That money, being the means of trading with each other, should be publicly created without charging interest. It should not be created by private banks for private profit. Because banks issue almost all the country’s money now as mortgages they profit from rising land prices. Instead, this rise should be publicly captured.

7.That almost everyone aspires to own their own home, so homes should be more affordable and there should be a higher rate of home ownership.

8. That wealth should be more evenly distributed among the citizens. A win for the poor is a win for all.

9. Farmers should be farming for food growing and not for capital gains. Homeowners should view their home as a place of shelter rather than as an investment for private gain.

We have a golden opportunity to design a currency with a circulation incentive, which is, after all, Nature’s way. Since all goods decay over time, money should do this too.

The current system of having one monopoly national currency is structurally unsound because it can result in sovereign debt crises, monetary crises or bank crises. A second national currency, supplemented by other smaller national currencies and a variety of smaller local currencies like vouchers, timebanks and LETS will bring stability, resilience and prosperity. With the global financial situation unwinding fast we are facing a future of a diminishing money supply yet a declining purchasing power, in other words, a very long depression. We are living in a cauldron of threat yet in an exciting time of creativity.

The current debt money supply is land-backed but banks and property owners have benefited from it. Currently 98% of the money supply of a country has been issued by private banks at interest. Most of this money is issued as mortgages; so overseas-owned banks currently have a claim on a large proportion of New Zealand’s homes and farms. And it also means money is deeply implicated in the conversion of the commons to private property. Banks benefit from the rise in land prices because they are always lending more and more and property is the security for their mortgages. The monopoly money system brings instability, partly because of growing debt. Banks are owed $173 billion worth of mortgages in NZ. We need to stabilise the price of land.

Property Speculation is nearly over and it has been very profitable
When the price of land increases over time those who own property gain when they sell it. So excess money in the economy currently tends to go into speculation in real estate. Lured by bank promises of big loans and helped by the current tax system which encourages property ownership, investors have bought second and third homes. This is no good for productivity. According to the Productivity Commission Dec 2011, average section prices tripled from $50,000 in 1992 to $150,000 in 2007, a fifteen-year period. And between 2000 and 2007 house prices rose on average by 120%. But the rises in property values are not because of the effort of a landowner. It is the efforts of the surrounding community that causes the value of the land to rise. When a new railway is built the land near it rises in value. When a new business comes to town the land rises in value. The windfall should not therefore be the property of the landowner but the property of the community. Property speculation has particularly profitable in the land surrounding growing towns and cities.

However when property declines in value, the opposite happens. Banks refuse to lend, the prices are forced down and the economy shrinks. It would be much better if the price of land was stabilised.

Land and money are two inseparable issues and must be dealt with together.
The combination of an interest bearing debt money system with a land system where the rise in land price over time has been captured privately rather than publicly have together caused increasing wealth disparity. Wealth has continued to concentrate with banks and with property owners. If we fix the money system and keep it as a monoculture, but deal to the banks with a monoculture monetary reform, landowners will further aggregate wealth and there will be inflation. House prices rise. Fix just the land system and money will concentrate with banks. Banks will “row the economy” between tight money and easy money causing booms and busts. They put up interest rates for “riskier” business loans. They buy patents, radio spectrums, copyrights, and trademarks. They bribe governments. So both issues need to be tackled together. The land and money issues intersect at one point – mortgages. So it is on this we should focus.

The booms and busts are now escalating and we have had huge property bubbles and bank ponzi schemes, which must now unravel over the next decade. Every few years there will be a property bubble followed by a banking, monetary and sovereign debt crisis. Both monetary reformists and Georgists have claimed that the Global Financial Crisis, whose effects will be felt for decades, was due to their issue. It is not either/or; it is both/and. We need monetary reform and public capture of the rent on land.

After decades of exponential growth interrupted by occasional corrections acting as a brake, now we are in a situation where the brakes are going to be on much of the time.

Land prices, inflation and deflation are inextricably linked

1. Since 1999 land prices have been left out of the basket of goods used to measure the CPI. When house prices rise it is the land that rises in value not the building. If we had a more valid measure of inflation, interest rates would have been much higher and people would have suffered much more. So since 1999 we have been sheltered by invalid statistics.

2. Rising land prices are a consequence of the inflation of the money supply and diminishing land prices are a consequence of the deflation of the money supply. On a rising property market banks create more money in the form of debt money, the money supply increases, while on a falling property market, banks create less debt-money in loans and the money supply decreases.

3. Much of the motivation/imperative to buy a house for the past thirty years has been to exploit the inflation of the money supply. With inflation and an expanding money supply it gets easier and easier to buy property over time. As the money supply expands, the real size of the mortgage shrinks so it gets easier to pay off.  With deflation the opposite is true. With a declining money supply, the real size of the mortgage increases, making it harder to pay off. So don’t have a mortgage in a deflationary period. Shrewd property owners seeing a crash coming will sell up, keep cash and are in a position to buy up cheap land at the end of the crash. That is what happened in the Great Depression

With deflation, even though prices are falling there is not enough money in the system for buyers to afford houses. Wages are lower and purchasing power is less.

4. No graph created by a statistician should ever have to correct for inflation or deflation, because there shouldn’t be any. We are already at the beginning of a very long depression unless something drastic is done. Otherwise we just career along in the same faulty vehicle along the same downward path. The Global Financial Crisis is going to take a long time to unwind. We need to stabilise land values, inject liquidity and protect ourselves from being dependent on a monoculture currency when the money supply is constantly shrinking.

The challenge

We need a process to move land to public ownership and labour to private ownership. Then we need a mechanism to distribute this windfall to the public in equal shares.

Since a charge on those who have monopoly use of sites must replace income tax it not to be seen as an additional tax.

Both land tax and monetary reform will shock the economy so we need a process for gradual change.

We also need mechanisms for to share out our precious resources and for ensuring a growing economy doesn’t damage the environment.

So how are we going to get there?
This proposal brings together the writings of at LEAST three visionaries. They all did their thinking and writing during a depression. In the 1870s depression Henry George advocated that land taxes replace income tax as a route to justice and prosperity. In the 1880s depression Silvio Gesell advocated a currency with a negative interest rate so that holders of money wouldn’t have an advantage over holders of goods and so that money would circulate, doing good. Finally there was John Maynard Keynes who advocated Government spending money into existence to stimulate the economy.

This proposal rolls the three solutions into one. It is influenced by the recent writings of Bernard Lietaer who advocates multiple currencies for stability and resilience. Lietaer believes with the monopoly of single national currencies there are banking crises, sovereign debt crises and monetary crises. The proposal is influenced by the ideas of UK visionary Adrian Wrigley, who was stimulated by the horror of Margaret Thatcher’s Poll Tax, after which he put together land value taxes with reform of fractional reserve banking. I have used his model as a base and applied the complementary currency thinking to it. Land and money are Siamese twins and are joined together by mortgages and bank credit.

This proposal might then appear quite complex. But as I see it there is no other way but to combine these factors for a more egalitarian society in which everyone has enough of the essentials – housing, food, work and culture. I ask for your patience in understanding the reasons why these are combined in one big policy. If we do it piecemeal it won’t work. We can’t just reform the currency without causing property bubbles and inflation. We can’t introduce an effective land tax without shocking the economy and causing massive political backlash. We can’t spend money into existence by issuing more of a monopoly currency without putting a price on the holding of land to prevent inflation.

The proposal

To balance the ‘patriarchal’ monoculture of a bank issued interest-bearing debt currency we need to have a series of ‘matrifocal’ complementary currencies at least one of which is issued with a circulation incentive.

This proposal is to allow government to issue tax vouchers and call this second national currency the Zeal. It would be legal currency, just as notes, coins and bank credit are legal currency now. In order to link the new money to the value of the land we propose the government contracts with would-be home owners to pay for the land in Zeals, (valid for payment of taxes) and in exchange the landowner creates a land covenant requiring the landowner to pay a regular sum (which could be called a land rental, a land levy, land tax or a covenant payment) to government, which works out at about 5% of the land value, the percentage to be fixed according to the land’s zoning.  In effect the government gradually pays for the land but the guardianship remains with the owner and the title is burdened.

It makes logical sense to connect central government to local government by land value, land rental, land use and housing because local authorities already have their revenue tied to property value. And unlike other countries New Zealand has a good system of valuations that separates land from improvements.

The Land Levy is ongoing. It is not a mortgage that eventually gets paid off.

Mortgage holders go to Treasury (not Reserve Bank) and ask for mortgage relief for the land value of their property. The Treasury, using the Kiwibank’s facilities, spends Treasury Notes into existence and gives it to the homeowners who take it to their banks. We could call this currency the Zeal, so we have a second legal currency in the country. But this currency is designed to decay like goods decay. It is designed for spending. (Paradoxically this works to increase long-term investments in productive enterprise, see Bernard Lietaer and Stephen Belgin for historical examples New Money for a New Society) The Zeal is legal currency.

Treasury Notes or Zeals will only be tradeable in New Zealand. They will not be tradeable on the international currency market.

I am not sure of the mechanics of how Treasury, the mint and Kiwibank would work together, but the result could be a LOADED card with two chips, each with a currency loaded – one NZ dollars, one Zeals. And a certain quantity of notes but probably not coins. It would be critical to keep the value of the Zeal on a par with the NZ dollar and this could perhaps be done by a regular transfer of a small amount at a rate of 4-6%* per year electronically, a tiny amount to be transferred daily from the NZ dollar chip to the Zeal chip to validate the Zeals. The face value of the new currency must remain constant, while a small hoarding tax payable in NZ dollars or cents is paid regularly to validate it.

The contract with Treasury would state that the mortgage holders would, within ten days, covenant their title, burdening it with the obligation to pay a full land rental to government in perpetuity. This would exempt them from all rates and back rates. It is an opt-in scheme so there should be minimal political contention. We are proposing to just use current contract law. The land tax is paid in either Zeals or NZ dollars, as both are legal tender. The Government would set the ratio of Zeals to New Zealand dollars year-by-year.

Because tax is already paid as a land tax, no income tax, company tax or GST will be imposed on transactions using the second currency. The IRD would not have to set up a second system

A New Way to use the term Government

When we use the term government, in this case the payment will go to the local Community Board, who will keep some and remit a portion to the local council, who will keep some and remit a portion to central government (ratios yet to be determined). I have chosen the Community Board because it is the Community Board that is in touch with the rental value of the land and the zoning issues. In the case of homeowners who can’t pay, it should be the Community Board rather than central government who deals with the issue.

Wouldn’t the Government then own the land?
No. The fact that the contract gave money up to the value of the land does not change the ownership of the land, but the required Land Levy is included in the title as an encumbrance – a big one. It would be enough to drop the price of the property dramatically and make it more affordable. Because the encumbrance is on the title, the ‘owner’ then effectively becomes the guardian of the land or ‘kaitiaki o whenua’, as it should be. The owners are fully responsible for what happens there.

So what is a covenant?

There is a provision in property law that allows land to be covenanted, or subject to a solemn promise. It is an agreement often between adjoining landowners to do something (affirmative covenant) or to refrain from doing something (restrictive covenant) with relation to the land. An example of an affirmative covenant is a promise to build a fence, while an example of a restrictive covenant is a promise not to develop land for commercial use. Each covenant has two sides: the burden and the benefit. The burden is the promissor’s duty to perform the promise and the benefit is the promissee’s right to enforce the promise. These covenants ‘run with the land’, which means that subsequent owners of that land must honour the covenant. The title becomes burdened.

This is an opt-in scheme where would-be home buyers can contract with government to covenant their land with a financial obligation, an agreement to pay a regular sum to council in exchange for the council giving them a lump sum to pay for their land. At this stage they are exempting them from all land related like rates and other charges. The sum paid will be negotiated case by case according to legislative guidelines and be, say, the amount they would have paid in mortgage interest on the land together with the rates, minus say 10-15% or it may be up to 20%, depending on the land use.

If government is seen as one, which are parties to the covenant?

For discussion. Obviously it is government as a whole that collects the land levy. But the money goes originally to the Community Board not to central Government. Does there have to be new legislation creating this new covenanting body, called “The Government”?

Land Rental Index
The land tax would be linked to a Land Rental Index, constructed by taking a sample of land rental values from the area, averaging it to give it a value of 100. Then the next year, it would go up or down a fraction, but generally it would be very little. Land rental values are very stable. Big movements would occur only if a region was serviced by new infrastructure (e.g. inner city rail network in Auckland). They would also rise if a significant new business appears e.g. when a fast ferry came to Waiheke Island. They will fall if some infrastructure disappears (e.g. if Gisborne railway is cut off by slips). They will fall significantly when earthquake affected land had reduced rental value or rise when the land was remediated. This would be fair to Christchurch property owners. If land falls down a cliff due to subsidence or is zoned red, the rental value drops to zero.

People buying their first home could also go to Government for the new money. If the value of the land was $300,000 they would ask for Z300,000. They would take it to the vendor, who would receive it and use it to buy another home. If the vendor didn’t want to spend it on a home they could then spend it into the economy. This is a method through which new money enters the economy.

First, the Community Board must give a proportion of the land tax to the local council. Then they give the rest to Central Government which, when it has amassed a certain amount of Zeals distributes a Citizens Dividend (it might be as low as Z50 or less) to every citizen over a certain age. (The 1951 precedent in NZ was that when there was a high wool cheque the government gave out a five pounds dividend to all families). As more and more people opted in, this Citizen’s Dividend would gradually rise. This is a universal payment and is not asset or income tested. It will eventually lead to a full liveable income, the Universal Basic Income.

Those who have already paid off their mortgages can equally have their land paid for in the second currency. Some of them will be struggling to find suitable investments. They will figure that it is worth paying the regular land tax. Then when they have a substantial sum of the second currency in their hands, they can upgrade their homes or invest in a suitable business for the long term, and tax-free. This is real savings.  High income earners in their forties or fifties would fall into this category.

Is there a historical precedent for having dual currencies?

Yes. In Europe in the Central Middle Ages there were two currencies, a domestic currency for local use and a long distance currency (gold) for trade. A system with rather a similar circulation incentive operated in Europe between the years 1040 and 1280. The local lord issued the local currency in coins, and the practice was that this currency would have to be handed in when the lord died and there would be recoinage. But it was common to hand in four coins and receive only three, an equivalent of a 25% tax. Nobody knew when the lord would die so people spent them as fast as they could and the result was those magnificent European cathedrals. These were to provide the town with pilgrim and tourist income for many centuries. People spent a lot of time on maintenance of their ovens, winepresses, mills and heavy equipment. There were variations between districts.

So there is the paradox. Money that decays in value can actually result in long-term thinking and long term productive investment.

 The outcome

Effect on Banks
The corporate banks will be left out in the cold and start to pressure government to stop this madness. But if the common experience is for small towns to flourish and create jobs and that the trend is towards local sustainable businesses, then there will be several MPs who will oppose any move to change a law. Grassroots movements well planned can all always overcome the power of centrally owned corporates. It is hoped there would be just too many fires for the banks to put out all at once and they can no longer influence public opinion.

If banks put up their exit fees, government should legislate. If banks complain they can’t do anything with their Zeals, government will tell them to lend them out without creating credit against them. In fact, because the Zeals decay the banks will most likely lend them out and end up behaving like a savings and loans bank does, which is good. If Australian owned banks depart, they still have to deal with their mortgage holders.  No doubt the effect would be major so would have to be closely monitored.

And of course banks will immediately take the case to the World Trade Association, as New Zealand would be setting a precedent.

Effect on the economy
Simply shrinking the nation’s mortgage debt would be a massive economic stabiliser, because the household sector wouldn’t be vulnerable to ‘pumping and dumping’ from interest rate variations. Stabilising property values will be of benefit to everyone. There will be lower private debt.

  • There will be a gradual transfer to land tax from income tax, GST and company tax.
  • Covenanted house prices drop dramatically but there would be no loss in equity. Covenanted houses become affordable for the young earners.
  • There will be more purchasing power in the economy.
  • There will be a stimulation of the NZ economy but those using imported goods will not benefit.
  • Land is gradually taken out from the market economy and returned to the commons.
  • As soon as the first Citizens Dividend is paid out, there starts to be growing political support, with social pressure for other mortgage holders to do it, too. Starve the banks and pay the government instead.
  • Only one payment on your land, the land tax or land rental.
  • There will be a vast improvement in our Balance of Payments because less importing will be needed and there is a drop in the value of NZ dollar.
  • Job creation starts as people started investing their Zeal in productive enterprises and firms save precious NZ dollars for imports.

Effect on Small businesses
Small business would benefit once the Government has sufficient revenue to discontinue GST & company tax. Small business is crying out for someone to support them and for a stable monetary system. They don’t want the country’s investment finance going into property. Small businesses that deal in locally sourced materials would have a major advantage.

Effects on revenue of local and national governments.

As more and more people opted into the land covenanting scheme government, both local and national, will notice their revenue rising.

The process of issuing a Citizens’ Dividend would most easily be done through the Inland Revenue Department, who has a record of every citizen’s address. This would grow over the years till it reached a liveable wage.

Community Boards, Councils and Governments are seen as one in this arrangement. In a healthy New Zealand economy every part must thrive. An organ can’t be healthy unless the whole body is healthy.

What would be the effect on Māori land? Because they already serve a public purpose there would be no levy on customary land or on Māori reserves.  Only Māori freehold land and general land owned by Māori could be affected by this proposal. Given the reality of multiple ownership, and the fact that with each generation there are more and more owners for every land title, it is becoming increasingly difficult for all owners to agree without having a corporation or trust administering the land. Only a third are organised this way at the moment. Some owners have moved to Australia or live elsewhere in New Zealand, and some are simply not found. And until Kiwibank introduced its Tura Whenua scheme in 2011, banks haven’t lent for building on Māori land. Consequently much of the land under the jurisdiction of the Māori Land Court is undeveloped and underutilised. Māori land is 5% of the country’s land.

The valuation situation is also different. In the case of Māori freehold land, if the land was sold, it has to be to someone in the same hapu and who is recognised by the Māori Land Court, so there isn’t a situation of a willing buyer and a willing seller. Therefore valuation becomes an area of contention and injustice as Māori land has been valued too high. As a consequence, when it comes to paying rates to local councils, there is often a long history of unpaid back rates in dispute.

However, a question to be answered is, in rural areas especially, much land is already Māori-‘owned’ (in a Western sense): so how might land-‘owning’ Māori ‘opt into’ such a scheme? While many Māori may be ‘land rich’, they are often ‘poor’ in their ability to utilise it. A descendant of a deceased Māori landowner must apply to the Māori Land Court to establish their right to shares in the land. On average there are now 86 owners for every land title. When it comes to building on Māori land, the owners not only must organise and agree, but there is a plethora of agencies to be consulted.

So while the proposal is in line with Māori values, it could not be seen to be a magic bullet for building houses on Māori land or for transferring revenue from banks to government. There will be many other obstacles to overcome, so Māori will have to be involved at an early stage in this plan.

Objection 1: It would just be a second-rate currency. A lot of islands in the Pacific use the Australian or NZ dollar. Their own currency is not used very much.
Answer: For centuries banks have been allowed to create money as mortgages and charge interest. Banks at the moment draw their income on the best security – land – leaving governments to depend on the less secure income tax. Pacific Island currencies are not based on land, nor are they designed to decay. So there is no comparison possible between the two. Since the Zeal must be validated by a regular payment in national dollars, the second currency has a value exactly the same as the first currency. It is artificially constrained from dropping in value. No one can prefer NZ dollars to Zeals. Zeals are legal currency because they are acceptable for taxes.

Objection 2: You wouldn’t get people to use it
Answer: It would be up to the Government to accept the currency for taxes, rates, ACC fees etc, and to enrol major NZ companies in the idea of accepting it. Telecom, State Insurance, Fonterra, State-owned power companies etc. If people could buy their butter, milk, insurance, phone services and electricity in Zeals and pay rates and taxes in it, that gives it huge value.

Objection 3: If NZ-owned banks were cooperating with Treasury to put this currency into circulation, the Australian-owned banks would declare war on them and not accept their credit.
Answer: Yes this could be difficult. There are four New Zealand owned banks – Kiwibank, the Cooperative Bank, TSB and SBS and they are all in the circuit of banks, which settle with each other each night.  However remember that the big NZ-owned companies could well be on the side of the New Zealand owned banks and public support for the scheme might grow, so the political contest might end up being more even. It calls for gritty politicians. And yes, they would take the case to the World Bank as soon as possible so a case would have to be prepared in advance.

Objection 4: It is better to use the Reserve Bank credit.  It is simpler
Answer: The Reserve Bank is tied up internationally with the big international banking system and the possibility of it changing is remote. The Governor goes to Wall St regularly. Moreover, once the Governor is appointed by the Minister of Finance, there the public control of the Reserve Bank stops. So instead we start with Treasury, a government department answerable to the Minister of Finance. Treasury Notes have been issued before in various countries especially in times of crises. If you issue Reserve Bank credit you are replacing a monopoly currency with another monopoly currency. The reason for doing this is to have at least two currencies to ensure resilience and prevent monetary crises, which can still happen with Reserve Bank credit. Furthermore, using Reserve Bank credit without imposing a land tax is not addressing property bubbles and the inflation they cause.

Objection 5: You should do it without the complications of decaying money. If your money decays, this is like inflation and it harms the poor.
Answer: A tax on hoarding is different as it penalises only those who hold money for too long. Inflation harms everyone, especially the poor. A circulation incentive ensures the money changes hands regularly; when this happens, much more good is done. A similar currency in Wōrgl, Austria during the depression circulated fourteen times as fast as the Austrian schilling. Holders of money should not have an advantage over holders of goods. A decaying currency actually helps the poor because they spend almost all their money anyway on basics and this system helps with the provision of basic housing, food, electricity and clothing. They will spend it quickly anyway, so it won’t make any difference to them. But will make a big difference to those who hoard a lot of money.

Objection 6: People would fill up their houses with junk. If money had to be spent and there was plenty of it, then people would go out and buy cheap Asian goods.
Answer: This is a currency for the use of New Zealanders buying New Zealand products. So it couldn’t buy cheap Chinese goods. The new currency wouldn’t be able to buy imported oil based products, petrol, plastic, etc. We could save our precious New Zealand dollars for buying our necessary oil, machinery and pharmaceuticals. It is possible that home storerooms would be larger. But generally people will pay their taxes earlier and lend more readily to family members and friends.

Objection 7: There would be inflation
Answer: The money supply wouldn’t change if people were just relieving their mortgages and taking Zeals to their bank to cancel the previous money. Moreover, since land is gradually taken out of the market economy there will be a reducing tendency for property bubbles, and eventually this would trend would peter out. Every property bubble causes inflation. Since land prices rises have not been included in the Consumer Price Index since 1999 the official inflation figure is incorrect, invalid and artificially low.

Objection 8: The banks wouldn’t lend out this new money.
Answer: They would have to be stupid not to, because if they hold on to it, it decays. The Zeals rot like potatoes and rust like iron. So the banks would lend them out all right – probably the whole lot of it. It has to be got rid of. They wouldn’t use it to back a new loan in NZ dollars with interest; that doesn’t help them get rid of the decaying currency. When we design money to turn it on its head, behaviour towards the money is turned on its head, too.

Objection 9: The loan the banks made in the first place was fraudulent because they created the money to lend and then charged interest on it. Why honour a fraud?
Answer: The alternative is worse. South Africa has a case coming up in court to challenge the banks but it is extremely costly and may fail. The financial ability to hire top lawyers is a barrier, so this is a very unequal option. We don’t want to be politically naïve here. We pick our political battles carefully.

Objection 10: You would need to amend legislation.
Answer: Yes, there could be several Acts to amend.

Objection 11: You wouldn’t get farmers opting in, nor would the asset rich, income poor. Nor would overseas owners.
Answer: Land, especially dairy farm land has been overvalued because the price of milk powder is inflated by international markets. Some young farmers might opt in, the ones with a huge mortgage. And the asset rich, income poor wouldn’t opt in at all. They don’t need to. The overseas land owners might have to be dealt with by legislation. But generally when people observed all the good that the land covenanting process was doing creating jobs and bringing old jobs home, more and more homeowners would opt in. There would be a snowballing effect.

Objection 12 Land tax isn’t fair for people with conservation areas on their property or whose homes are designated historic.
Answer: You are quite right. Land already serving a public purpose will be exempted.

Objection 13. If you have abundant currency and an imperative to spend it, every river in the country would be dammed.
Answer: 70% of our electricity is already from renewable resources and we shouldn’t need more rivers dammed. Comalco uses a huge proportion and the new currency will not favour them. An appropriate rental should be put on the commercial use of water. Water for electricity might be subjected to the equivalent of a 5% land tax for privately owned electricity companies. If we charge a decent sized rental where the company is privately owned, but not for one, which is, Government owned, that would make privately owned electricity companies less profitable and they may choose to sell back to Government. Then as a country we can collectively decide if we want more electricity. The campaign against damming the Mokihinui succeeded. Public opposition could prevent further unacceptable proposals. The land covenanting process won’t take away our collective responsibility to care for the land and the environment.

The pressure for more river damming is dependent on the standard of living, on population and also on the energy use per capita. When the new currency has effect, there will be a huge boom in home insulation, thus reducing the demand. When there is more egalitarianism due to the Citizens Dividend and the move to land tax and public money, the status of women will rise and with it a reduction of the birthrate (the solution to global population overshoot is similarly about improving living standards through public money, reducing poverty birthrates).  When there is a dual currency imports will fall and we won’t be able to have television sets in every bedroom, a huge trucking industry and throw away computers.

Objection 14. A currency designed this way will stimulate every section of the economy, including local coal, oil, gas, unsustainably harvested timber, and products and service using these, and products from unsustainable farming and fishing.
Answer: Every one of these resources should be taxed properly. If you have a high enough level of resource rental for coal, oil, gas and native forest and the land surrounding it etc, then this will be a reasonable disincentive for would-be developers. But it will have to be supplemented with ration coupons for the use (extraction?) of non-renewable resources, tradeable in Zeals. (This is a whole new topic but critical to the success of the Zeal)

Objection 15. If a purchaser was choosing between two properties with comparable land value and the same improvements value and one was covenanted and one wasn’t they would bid higher for the covenanted property. Covenanted improvements would cost more to buy than non-covenanted improvements.
Answer. The value of the covenanted property is actually only half the value of the comparable property because its title is now heavily burdened. The selling price ends up being the equivalent to the bricks and mortar plus any improvements added, plus the extra resulting from the added competition from buyers. (There would probably be more buyers in that price range, raising the demand). Nobody would pay more simply because their annual outgoings on the covenanted house would be less than the other. They would be more likely to save that money for their own improvements, knowing they will get it back when they sell. Nobody’s improvements will be taxed. This is designed to untax labour and initiative.

Objection 16. Mortgages at least come to an end but these land taxes don’t. So I would be better off with a mortgage. At least I can pay that off.
Answer: Remember that over twenty years you also will pay a great deal of income tax and GST. Add that up and you will find it comes to a great deal more than you are paying in land rental. Once you get the fact that land taxes are a replacement for other taxes not an additional tax, you realise you will be far better off. Prices fall without interest on money, prices fall without GST, prices fall when income tax disappears. Everything becomes in fact much more affordable.

Other necessary policies to make this work.

Perhaps the most critical policies to be introduced with this idea are the policies to protect ourselves from economic development with high fossil fuel use. High resource taxes imposed at the coal face or the oil well will probably not be sufficient. One idea is to ration coal, petrol and issue ration tickets which would become a currency tradeable in Zeals. They should not be tradeable in NZ dollars. When any business or individual purchased coal they would need both Zeals and ration tickets. Allowing them to be tradeable will reduce the poverty gap as low coal users will sell to the high coal users and light petrol users will sell to the heavy petrol users, thus narrowing the wealth gap somewhat.

Because coal is exported and contributes to global warming, this policy should be also be implemented together with a rationing system for carbon emissions at global level, operating in a similar fashion. This is a harder challenge and beyond the scope of this paper.

Ongoing questions

  1. Name of fee. Should the fee be called a land tax, land levy, covenant payment, covenant fee, public fee or what? Language is important.
  2. Maori land issues. There are many discussions to be held.
  3. Zoning issues.
  4. Discussion on the setting up of a Land Rental Index.
  5. How is a default on payment of land tax dealt with? Can there be a built in insurance against a sudden loss of income earning capacity through an accident or illness?
  6. The disadvantages of having an opt-in system is that those who covenant their land are leading the way and are basically subsidising the others. This appears to be the price to be paid for a gradual introduction or is there another way?
  7. Land owned by overseas owners. Should the covenant be compulsory?
  8. Can reclassifying land be used instead of covenanting?
  9. Managing the public reaction to the loss of Australian owned banks would be an issue government would have to prepare for to alleviate public fears.


This proposal outlines a viable option for sustainable development in New Zealand. Development isn’t static. It is the shrinking of some sectors and the growing of others. Up to now talk of sustainable development has been all rhetoric. The term ‘steady state economy’ actually is a very dynamic state. Another fashionable phrase is ‘green growth’. But very little progress has been made. The missing link in sustainability is currency reform and the type of commons reform outlined above. This proposal achieves all of that without shocking the economy. With currency reform and commons reform of this magnitude there will be a surge of optimism that will bear a great deal of fruit. A new era of optimism, house building, home insulation, food growing, food processing, manufacturing and a whole new attitude to money will emerge.

We can stabilise land values, create jobs, reduce our indebtedness, make banks safer, help small and medium sized businesses, help prevent inflation or deflation, move to a low carbon economy, make it much easier for people to buy their first home, and reduce poverty – all by the same simple action repeated thousands of times. Moreover we have now maximised the chance for resilience by moving away from a monopoly currency that, together with regressive tax policies, has caused so many social problems, sovereign debt crises, monetary crises and bank crises. Several birds are killed with one stone in this proposal. The monetary and land issues are all dealt with together and the bonus is more equality and a hopeful start to environmental healing and living within the earth’s capacity. A country adopting this policy will be an oasis of prosperity and happiness in a time of high unemployment and misery and chaos.

Since all of our strategies have to be against the background of a very unstable and volatile financial and political landscape – not to mention climatic, there will be an urgency to implement policies like this.

But there will be many bumps on the way.

*4% per year is a low rate of decay. However it may represent the average rate of decay of a number of goods. When this figure has been applied before in history it varies from 4% to 12% and even more. The higher the figure the faster the money circulates.


I am very grateful for the input of many people to develop the ideas so far and welcome more feedback. Please respond to Deirdre Kent