David Bollier

The Green Party of England and Wales really knows how to stake out some fresh territory in their national politics!  At the autumn conference, the Greens adopted a resolution calling for “a programme of reform to remove the power to create money from private banks, and to fully restore the supply of our national currency to democratic and public control so that it can be issued free of debt and directed to environmentally and socially beneficial areas.” 

Bold thinking!  The Greens explain why the existing banking system is so pernicious: 

"The existing banking system is undemocratic, unfair and highly damaging.  Banks not only create money, they also decide how it is first used – and have used this power to fund financial speculation and reckless mortgage lending, rather than to finance investment in productive businesses.  Through the interest charged on the loans on which all credit is based, the current banking system increases inequality.  It also regularly causes economic crises:  banks create and lend more and more money until the level of debt becomes unsustainable, boom turns to bust, and the taxpayer bails out banks that are ‘too big to fail.’  Finally, the need to service the growing mountain of debt on which our money is based is a key driver of unsustainable economic growth that is destroying the environment."

The right to create money and profit from it is known as seignorage.  Banks currently enjoy this right and exercise it through their lending, which creates most of the money in circulation.  Governments have effectively let banks privatize control of the money supply.  In so doing, governments have forfeited the opportunity to provide debt-free lending to support productive enterprises and public needs as opposed to fueling boom-and-bust speculation and relentless economic growth that destroys the environment.

Reclaiming seignorage for public benefit has been a serious idea among many progressive economists for years.  A notable figure in this regard is James Robertson, the founder of the new economic foundation in Great Britain, in 1986, who has championed this issue for years.  Robertson’s most recent book Future Money explains how re-gaining public control over how new money is created and circulated could result in “an annual savings to all citizens of the UK of £75bn, and second in a one-off benefit to the public purse totalling £1.5bn over a three-year transition period.”

Now that free market dogma has become the dominant narrative about value – and yet that narrative is neither credible nor readily displaced -- we are descending deeper and deeper into a legitimacy crisis.  There is no shared moral justification for the power of markets and civil institutions in our lives.  Since the 2008 financial crisis, the idea of “rational markets” has become something of a joke.  There are too many external forces propping up markets – government subsidies, legal privileges, oligopoly power, etc. – to believe the textbook explanations of “free markets.”

This is a serious quandary.  We’re stuck with a threadbare story that few people really believe -- the “magic of the marketplace” advancing human progress and opportunity – and yet it is simply too useful for elites to abandon.  How else can they justify their entitlements?  These are among the themes explored in an astute new book, The Ethical Economy:  Rebuilding Value After the Crisis  (Columbia University Press, 2013), by sociologist Adam Arvidsson and entrepreneur/scholar Nicolai Peitersen. 

The implicit “social contract” that people have with the reigning institutions of society is coming apart.  As the authors note:  “Three decades of neoliberal policies have separated the market from larger social concerns and relegated the latter to the private sphere, creating a situation where there is no society, only individuals and their families, as Margaret Thatcher famously put it, and no values, only prices.”  Meanwhile, the catastrophic ecological harm being caused by relentless consumerism and economic growth is becoming all too clear, especially as climate change inexorably worsens.

Our “value crisis” is tenacious, say Arvidsson and Peitersen, because we have “no common language by means of which value conflicts can be settled, or even articulated.”  Few people believe in “free markets” and government as benign, mostly responsible influences any more; there is simply too much evidence to the contrary.  And who believes that the Market/State as constituted can solve the many cataclysms on the horizon?

Arvidsson & Peitersen’s ambitious goal is to outline a scenario by which we might come to accept a new, more socially credible justification for socially responsive production and governance.  They want to imagine a “new rationality” that could explain and justify a fair, productive economics and civil polity.  A tall order! 

While I don’t agree with all of their arguments, they do make a penetrating critique of the problems caused by neoliberalism and offer some useful new concepts for understanding how we might imagine a new order.  The Ethical Economy provides a bracing, sophisticated look at these issues.

Some interesting material coming out of Prosper Australia is a Melbourne-based organization and its partners, Earthsharing Australia and the Land Values Research Group.  A new report entitled “Total Resource Rents:  Harnessing the Power of Monopoly” (pdf file) finds that nearly one-quarter of Australia’s GDP comes from unearned income, not the 2% that neoclassical economists claim. 

This means that ten times greater revenue could be raised through taxing unearned income from monopolies than previously thought.  It also means that nearly half of Australia’s government revenues could be raised through channeling revenues from the real estate boom to more productive purposes.  In the process, income, company and sales taxes – along with 122 other current taxes – could be eliminated.

Report author Karl Fitzgerald, “the Renegade Economist,” describes the implications of the findings of the report:

“Unearned incomes equate to 23.6% of GDP and could be taxed without pushing up pricing structures. Most economists dismiss economic rents at just 2% of GDP. This report finds the free lunch driving the wealth gap is ten times greater than mainstream economists acknowledge. 

“Prices could fall by some 20% by reducing the number of taxes from 126 to 24” stated Fitzgerald. “The compliance and deadweight losses are a huge cost that fall disproportionately on small business.”  This reform offers a more efficient and equitable economic system, valuing productive over speculative activities.

Australia taxes productive work while averting its eyes from the incredible windfall gains handed to those who own monopoly rights. Victorian abalone licenses were sold outright for just $6 in the late 1960′s. Each license can now be leased out yearly for a reported $100,000. This unearned income can be taxed without affecting productive outcomes.

A fascinating new report just published by Co-operatives UK describes the huge potential of community land trusts and other forms of mutual housing and enterprise. Commons Sense:  Co-operative place making and the capturing of land value for 21st century Garden Cities brings together a wealth of insight into the practical solutions that community land trusts (CLTs) can provide. 

By converting land into commonwealth – capturing escalating land values for everyone’s benefit – it is possible to make housing more affordable and to finance all sorts of infrastructure and services that make communities more stable, attractive and thriving.  What’s not to like?  (Well, if you’re a bank, private landowner or speculator, you may not like the competition of a superior financial model.)

The Commons Sense report, edited by Pat Conaty of Cooperatives UK and Martin Large of Stroud Common Wealth, succinctly describes the basic problem:

The high cost of housing is draining money out of the productive economy, mainly through land and house price inflation, with damaging effects for national and individual household budgets.  Many new homes are unaffordable to ordinary working people, some offer poor value for money in terms of quality or construction, design and energy performance, and cost pressures frequently drive out good design in the spaces between buildings and in the concept of supporting new neighbourhoods.  Many new developments are socially, environmentally and economically obsolete from the moment they are conceived, let alone designed or built.

Conaty and Large note that in Britain, only 0.6% of the population – 36,000 people – own about half of the land.  This is a significant structural reason for soaring housing prices and continuing wealth inequality.