Relieved of Debt

When the decision finally came that the Green Party would be adopting a policy that cuts the link between money creation and the parallel creation of debts it came as a huge relief. Following more than a decade of pondering, discussing, educating and campaigning the party's activists were convinced that they could believe in the possiblity of public credit creation to end the centuries of capitalist privatised money and replace it with money produced for the common good. The motion was passed on Sunday at the annual conference in Brighton by 110 votes to 90.

Key to the change of heart of the Green Party have been two members of Kent Green Party, both of whom might be described as 'outraged of Tonbridge'. Brian Leslie has been a campaigner for monetary reform all his life and he recently recruited to the cause Andrew Waldie, who is a tall, softly-spoken accountant with a Scottish accent - exactly the sort of person you want to be on your side in a debate about money. From this most unlikely centre of radicalism has come what Andrew called the final part of the trinity of radical economics policies, taking its place alongside Land Value Tax and Citizens Income on an economic platform that has the potential to liberate working people from the oppression of wage slavery.

I am reproducing Andrew Waldie's proposal speech in full here: read and rejoice!

'This motion strikes a blow at the heart of financial capitalism by removing from banks their power to create money - and restoring the supply of our national currency to democratic and public control. Through their lending, banks create 97% of the money we use in the form of credit.  This gives them enormous power to direct the economy and shape our society - without any form of democratic accountability.

'Our banking system is also unstable.  History shows that debt-fuelled booms and speculative bubbles inevitably turn to bust.  Governments bail out banks that have become “too big to fail” – and the price of these bail outs are savage cuts in public services. The burden of servicing the debt on which our money is based also increases inequality and drives unsustainable growth.  These are issues which are of fundamental concern to the Green Party.

'Simply bringing the banking system under "Social Control" is not enough - more radical reform is required.  Leading green economists have advocated reform based on the principles set out in this motion. The motion avoids the fundamental conflict of interest that has corrupted the current banking system.  It separates the power to create money from the power to decide how that money is first used.  A National Monetary Authority – NMA - appointed by Parliament, would manage the supply of national currency.  Its decisions would be protected by law from influence by financial or other special interests.

'Elected governments would decide how currency created by the NMA is first spent.  This currency would then circulate freely at all levels of society.  Saving and borrowing would continue.  Local currencies could circulate alongside the national currency.  The major benefit of the system we propose is that people would no longer need to go into debt to keep money circulating in the economy.

'Over a transition period of 20 years, the NMA would convert the stock of debt-based money by issuing the same amount of national currency to the Government as additional revenue.  The value from transferring the endowment of our currency to public control has been estimated at £50 billion per year – that’s enough to fund the construction of 300,000 new homes – for each year of the transition period.

'Restoring the supply of our currency to public control would deliver a huge prize that could finance the transformation of our society.  Today, we have the opportunity to commit our party to seizing this prize by passing this motion.'

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The Gypsy Rover, the Norman Yoke and the Land Value Tax

I have always loved the folk-song The Whistling Gypsy. In fact, I like it so much that I have been known to sing it in those situations of cultural exchange where, far from home and in a foreign language zone, you are called on to share something. But I have always been rather disappointed by the heroine who, although following the gypsy rover, convinces her father to accept her decision by pointing out that he is 'Lord of these lands all over'.

But, like many aspects of folk culture, it occurred to me recently that this is a song of great subtlety. It is not that the gypsy is also a land-owner and therefore deserves the hand of the lady whose heart he has won, rather he considers himself lord of the land that he roves through. He has, in other words, gone through exactly the sort of mental reinterpretation we need to go through as a society. This takes some effort because it requires  us to throw off the shackles of a thousand years of feudalism.

Andy Wightman has done great service in the case of Scotland in challenging the legal effort that has been invested in constructing the reality of land ownership to the extent that the land we should share is littered with 'Trespassers will be prosecuted' signs and the authors of those signs are paid large sums of EU money for the privilege of having sole use of what is our national economy's most valuable resource. His books Who Owns Scotland links the rise of the lawyer's trade and their wealth to the need of warlords to provide written justification for their ill-gotten gains, and in an era when literacy was a rare privilege a legal document could exclude almost everybody from the argument.

This is my reason for supporting a Land Value Tax and this is what I will be arguing when I come up against Vince Cable on Tuesday evening at an RSA Screens event. He and John Christensen will find other reasons to support the taxation of land, some pragmatic and some rather dangerous--based in arguments about the 'inefficient' use of land. Property development is perhaps the most egregious current example of private profit at social cost and returning a large proportion of the gain from planning uplift to the community is an immediately appealing consequence of introducing LVT.

But for me our alienation from the land—our economy’s most valuable natural resource—is at the root of our alienation from nature itself and from our own freedom. This does not mean that we all need to be peasants but it does suggest that the way of the whistling gypsy may be a surer route to happiness than the way of the suited business executive or the zero-hours-contract worker for whom he creates a job.

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Budget Day: Time for Some Radical Proposals

Today is budget day and the desperate economic crisis suggests the urgent need for some radical policy proposals. Unusually, the BBC has allowed its business correspondent to actually think outside his corporate box and propose some genuinely innovative policies. We have already covered the proposal for negative interest rates on this blog, which might serve to circulate money currently being hoarded by companies and financial institutions.

More interesting is the fact that some ideas to tackle the debt directly, since until this millstone is removed the economy cannot flourish. Under the rather misleading heading of 'Helicopter Money' Lawrence Knight suggests the creation of new money for public investment or to be given to citizens to spend. Although he claims that the process of money creation is 'rather hazy' he seems to accept the proposal for direct money creation along the lines argued for by monetary reformers. Professor Richard Werner's letter to the FT earlier this month is like sunshine on a hazy day in terms of its clarity of presentation. His proposals for direct money creation by the government to fund public infrastructure projects is the sort of advice the Chancellor should pay heed to.

Relying on Steven Keen as cover, Lawrence Knight, BBC business correpondents, then makes a proposal to actually just cancel the debts. The concept of 'odious debt' finds its place for the first time on the BBC's business pages, although the social and political implications of the massive reapportioning of assets that such a debt repudiation would result in are not discussed. As a long-term supporter of the idea of odious debt I am greatly cheered to see the BBC at least reporting this proposal, if not supporting it.

Meanwhile, Green MEP Caroline Lucas has proposed a Private Members' Bill on Land Value Taxation. The bill is summarised as follows:

'A bill to require the Secretary of State to commission a programme of research into the merits of replacing the Council Tax and Non-domestic rates in England with an annual levy on the unimproved value of all land, including transitional arrangements; to report to Parliament within 12 months of completion of the research'.

How might a Land Value Tax help us out of our current predicament? I think it is a novel and creative solution. It identifies clearly the source of all true value within an economy: the land itself. It was forgetting this link that led to the divorcing of real and nominal value and bankruptcy for many economies. Iceland and Cyprus have become demonstrably bankrupt but many of Europe's economies would already have been obliged to call in the receiver had they been corporations.

A Land Value Tax would challenge the government's so-called 'presumption in favour of sustainable development' that is supposed to underpin its approach to planning found in the National Planning Policy Framework. What this policy and its unaccountable but clearly biased National Inspectorate really supports, however, is speculative developments whose value ends up in the pockets of property developers and those who hold land banks. A Land Value Tax could end this at a stroke, since the value of development would be taxes into the public coffers. While this might put put a break on speculative development in the short term, in the medium term it would shift the ownership and value of land, breaking the bottleneck that prevents citizens and communities from developing their local land for social and environmental benefit.
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More Balls about Tax

How refreshing that the economics debate has moved on. It used to focus almost exclusively on the rate of income tax, the 'penny on, penny off' debate that dominated for a decade or so. For the past year we have seen a genuine disagreement: about whether it is the rich or the poor who should shell out more of their incomes in tax. With the absence of a growth strategy, and no other thinking about responses to the economic crisis, the argument now turns to who should be the beneficiary of the tax cuts which are, apparently, our only hope.

Ed Balls is calling for a cut in VAT, encouraging us to spend more. As Osborne rightly responds, in a country that imports more than it makes, much of the tax thus diverted from the Treasury will not stimulate small businesses here, but increase growth in China. This gives the Tory backbenchers a wonderful opportunity to argue for tax cuts for their rich voters: ditch the 50p tax rate and reduce yet further the rates of corporate taxation. they bray from their leafy shires. This is justified on the basis of the entirely unsupported assertions that somehow allowing the rich to avoid paying back to society will encourage economic growth. But where is the evidence that they are less likely to buy Chinese goods than the poor? When the rich want their benefits evidence-based policy-making makes a swift exit.

This is a lovely opportunity for the mainstream parties to return to their familiar class-war tactics while missing the big picture. For a more imaginative Shadow Chancellor this might be a good time to think about taxing assets rather than incomes. We could see the bankers' bonus in that light, but far more productive in terms of loosening up the economy would be a tax on land. Andy Burnham proposed this more radical and creative option during his bid to become Labour leader; Miliband has not had the courage to adopt it.

Meanwhile, to the Tories you must ask what is the point of cutting corporate taxes when it is the small businesses that will create the jobs. In spite of the domination of the air-waves by corporate business, ONS data show that companies employing fewer than 50 people account for 97% of jobs in the UK, with less than 0.16% of people working in companies of more than 500 people. If the government is really interested in stimulating job creation rather than rewarding its paymasters it would adopt the Green Party policy of a banded economic tax related to the size of the company.
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A Reverse Transformation?

Polanyi's work is valuable in denying the priority placed on the market in most economic theory. His account of how we arrived at the situation where most of our needs are met by the market is worth consideration. Polanyi identifies three stages in the 'subjection of the surface of the planet to the needs of an industrial society. The first stage was the commericalization of the soil, mobilizing the feudal revenue of the land. The second was the forcing up of the production of food and organic raw materials to serve the needs of a rapidly growing industrial population on a national scale. The third was the extension of such a system of surplus production to overseas and colonial territories. With this last step land and its produce were finally fitted into the scheme of a self-regulating world market.' (p. 188)

Given that the market system needs to be re-evaluated in an era when our most pressing task as a human community is to ensure the sustainability of our society, we might raise questions about all three of these process of transition. It is taken for granted by most contemporary economists that land can operate like any other resource, that the process of the commodification of land—its bundling into parcels over which ownership rights can be asserted—and of its sale in a market is unproblematic, but recent developments towards land reform across the world, based in the indigenous view of land as having its own rights, argues against this.

Polanyi's second stage of the transition to a market economy he calls the 'forcing up' of production of food and organic raw materials' in response to the movement of the population from the land and its rapid expansion in the industrial cities. What he has in mind here, I think, is the loss of balance between people and their land, which is a nexus of interacting pressures and conflicts rather than a simple cause-and-effect process. This reopens the generally accepted view that economic growth increased population and then put pressure on resources.

While some environmentalists have traditionally taken what can be judged to be a neo-Malthusian stance on the population question, the more nuanced response to the debate is to recognise that the shift to the market broke the connection between people, their need for resources and the land they inhabited. In a peasant community, each new birth represents a mouth that needs feeding from a limited land resource; in contrast, in an economy where livelihoods are based around the labour-market, each birth represents a potential labourer whose time can be sold. Evidence of the extent of child labour in Victorian cities or in the megalopolises of the global South today is greeted with horror, and yet it is a rational response to an economic system where people have no right to land and need their children to guarantee their subsistence.

Polanyi's third point is linked to the second, since once the industrialised country's population were engaged in producing goods for trade rather than for their own subsistence, their basic needs for food and the raw materials to make clothing, had to be met from the work and land of others, and in the colonial era and subsequently this has meant through using the over-priced land and labour of countries of the global South. Extending Polanyi's insight into the present globalised economy we can see the system of the global trade system as a means of enabling the rich Western economies to rent land in the poorer countries, and exchange which cannot be fair while the former's currencies dominate the system of global trade.

Polanyi's central point is that the role of the market as the central and controlling mechanism in economic life is a modern and short-lived one: 'Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life.' (Polanyi, 1944: 45). To move towards a provisioning based economy we need to reverse the three stages Polanyi identifies as forming the transition to a market economy. In other words we need policies to:

Decommercialise the soil - perhaps a Land Value Tax is a first step here;
Return to sufficiency via the strengthening of self-reliant local economies;
Limits on global trade rather than hyper-globlisation.
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The Value of Land: A Taxing Debate

Here's an issue we shouldn't lose sight of. There are many reasons for supporting a tax on land, and there are noises from various quarters that suggest such a policy might be gaining the sort of support it needs to receive serious political attention.

Well, yes, I know you are not going to take me seriously if I follow up that enthusiastic opening by telling you that Land Value Tax is to be debated at the Liberal Democrats annual conference this year. But it is fairly historic that a government party should debate in public this very radical approach to taxation.

Of course there are many variants of how a tax on land might work and why it might be useful. To liberal economists, those who live from rents are not economically productive, so land tax encourages them to put their land to the most productive use and is thus a stimulus to economic growth. To more redistributively minded conventional economists, the windfall gains from planning decisions should not be privatised to developers but shared with the community: a tax on land values enables this.

But the reason I like land value tax is that I believe it would operate like a transitional demand. While it could be seen to be part of a market approach to the economy, in fact land ownership enables people to escape the market system and meet their needs directly from the land. Hence any move that suggests that land is a public resource, rather than a private one, and implies the value of land as a part of the common wealth moves us towards the non-market society that will maximise human happineess and protect the planet.

If this debate is new to you, you might like to read a special issue of the newsletter Tax Justice Forum which focused on the issue. If you're in the mood for something a bit more rousing and rhetorical you can check out a short speech I gave at the House of Commons during a meeting on the same theme several years ago.
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Celtic Land Values

I am grateful to The Land magazine for keeping tabs on the development of land use policy in Wales. In spite of the recent consultation over access to the countryside in England, there is little serious linkage between land ownerhship, sustainability, and food security in the English shires. By constrast, what is happening in the newly devolved territories of Scotland and Wales may be the beginnings of a revolution.

Perhaps because the history of exclusion from the land is still kept fresh in Scotland, the emphasis there was on taking control of land for local people and on the need for a land reform. Such demands are commonplace across the world but are less commonly heard in developed and industrialised societies, where people appear to find it hard to imagine any alternative to wage slavery. Unlike in England, these are not marginal ideas from cash-strapped campaigners, but significant planks of the policy platform of the governing party.

The Scottish Green Party is creating a buzz with an attempt to put onto the agenda the question of how to share fairly the proceeds from rent of the land: its survey of the potential for a Land Value Tax in Scotland is a useful model for England and Wales to follow. The proposals suggest a simple switch from the regime of business rates and council tax to a system of taxing the land itself. This would make 75% of Scots better off and achieve some wealth redistribution, but the data needed to make a more thorough assessment of how land is owned and used - and who gains the benefit - is still beyond the pocket of a political party like the Greens.

In Wales, meanwhile, the focus is on using planning policy to encourge sustainable lifestyles, and to replace the prejudice against low-impact lifestylers by offering them real legal support in developed sustainable livelihoods from the local land. With its technical guidance note TAN6, published back in the summer, Wales has followed the lead of Pembrokeshire County Council in supporting the right to build in the countryside of those who make their livelihood locally and in a sustainable way.

The policy is called Planning for Sustainable Rural Communities but includes the revolutionary section on One Planet Development, as well as support for self-build, the development of rural micro-business, and exceptions to uniform development bans to support such sustainable rural livelihoods.

As Simon Fairlie concludes, 'TAN 6 is a welcome departure from English planning policy guidance for the countryside.'
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Land: The Final Tax Frontier

Here are some further interesting reflections from Martin Wolf, who seems to be breaking the economists' rule of a lifetime and actually engaging in some open-minded thinking. This time he is on the issue of land, and even goes so far as to consider the writing of Henry George on the subject. (I have already posted about my recent encounter with his devoted followers.)

Why should this issue be receiving attention, all of a sudden? Could it be that, with all other sources of revenue drying up, the politicians are at last realising the benefits of taxing land, which cannot be sent offshore or hidden in a foreign bank account? The Tax Justice Network considered this possibility in a recent special issue devoted to land tax, where I rehearsed many of the arguments Martin Wolf addresses in his piece.

Theoretically, Wolf must be right that the removal of land from economic theory was absurd, and contributed to the disconnection of the economy from the environment that has been a major contributor to ecological crisis. But as Greens we always have to be cautious about taxing land, since putting pressure on its value could merely lead to over-exploitation. Proposals for such land taxes always need to be linked to strategic objectives, put into practice via a newly democratised and community led planning process. Tweet

The Church of St. George

A week before the election - and how long ago that seems now - I was happy to accept an invitation to make a presentation to the IU Conference on land issues. The International Union for Land Value Taxation is an interesting organisation with a long pedigree that campaigns under the slogan 'Why is so much wealth in the hands of so few'. Its primary motivation at present is to propagate the policy of land value taxation.

In spite of its obvious appeals in terms of justice and practicality - after all, land cannot be hidden or sent overseas as a means of evading tax, as most other assets can - the taxation of land has not received much attention in recent years. This is partly, I think, because those who argue for it often come from the opposite ends of the left-right spectrum.

On the left end we have people who, following Gerard Winstanley and the Diggers, argue that land is a common wealth and that value extracted from it in tax should be shared between all the citizens of that commonwealth, or nation. On the right end we have those who argue that the absence of a cost for land stifles its efficient exploitation, leading to over-strict planning laws and the like. If people had to pay to own land, they would be sure to get the maximum financial return from it.

Henry George, the radical journalist of some 150 years ago who created a global grassroots campaign for land taxation, seems to have had sympathies with both of these arguments, but that was before the planetary limit was an observable concern. Since the recognition of the limits to growth we would need to work a land tax in conjunction with the planning system to prevent over-exploitation.

I was not received with universal approval at the conference, largely because I had made a speedy attempt to calculate how much a land tax might actually yield in the UK today, and what proportion of the overall tax tax this appeared to be. My assumptions were clearly questionable, but I felt it pointless to discuss theory without having some handle of what the fiscal implications for the UK might be. Although I presented my figures with a lavish quantity of caveats, they were attacked (subsequently) for being treacherous.

However, explanations offered to me as to why I was wrong were theoretical. George argued that a land value tax could be a 'single tax' since all other sources of taxation would ultimately have to be derived from land as the source of all wealth. As a green economist this argument appeals, but it cannot be theoretically upheld today for a couple of reasons.

First, the value that is generated by companies today is not linked to any particular parcel of land and does not derive from it. Most is created from thin air by financial institutions. Second, our consumer lifestyle relies on renting - at extremely cheap prices - productive land in many other countries around the world, to produce our food and the raw products for our clothes and consumer goods. If we truly lived from the value of our own territory we could never sustain the levels of living we now consider our right.

While this undermines the theoretical argument for land value taxation, it also suggests that land value tax might be able to play a crucial role in recreating the link between the value that land can produce and the financially based size of a national economy. It is the breaking of this link that is driving environmental destruction. Limiting the money system and introducing a tax on land values could offer policies to restore it. Tweet