Common Wealth!

COMMON
WEALTH!
An Economic Credo for Humanists

Andrew Duffield
North East Humanists
July 2009

Life’s 2 Certainties
• TAXATION

• DEATH BY POWERPOINT !

(NB - in the event of death,
inheritance tax applies.)

Semantics… ‘Credo’
• We have beliefs too!

• Founded on reason and
scientific evidence

• Science is underpinned
by immutable laws

‘Economics’
• Also has immutable laws
- ‘oikos’+‘nomos’=‘house-law’

• Called ‘the dismal’* science
- *due to semantic obfuscation?!

• A man-made system – yet
more chaotic than the weather!

Some Definitions…
• ‘The use of finite resources to
satisfy needs and wants.’

• ‘The study of choice,
as affected by wealth.’
• ‘The production and
exchange of wealth.’

‘Common Wealth’
• Aftermath of English civil war?
• Ironic, post-imperial epithet?
• “Economics of plenty”


- recovering ‘community-created value’
- fair shares in Earth’s resources
- justice, welfare, posterity
- freedom / choice

Humanist Beliefs
• “…freedom compatible with the
rights of others…”

• “…duty of care to all…including
future generations.”

• “application of…science…to the
problems of human welfare.”

- Amsterdam Declaration (2002)

NEH
‘Values & Actions’
• “…development of social, economic
and political systems capable of
delivering [equal rights].”

• “…trade which could lift millions…
out of poverty.”

Poverty of Religion
• “The poor will never cease to be in
the land” (Deuteronomy 15:11)
• “You always have the poor with you”
(John 12:8)
• “For you will always have the
destitute with you” (Matthew 26:11)
• "For you always have the poor with
you, and whenever you wish you
can do good to them”! (Mark 14:7)

Wealth Distribution

Earned Wealth Unearned Wealth

TAXATION

The ‘Wealth Gap’
• Earned Wealth • Unearned Wealth
-Rewards human -Rewards privilege of
ingenuity, planning, ‘natural monopoly’,
endeavour & risk. needing no active input

-Has production cost -Has no production cost
(being socially created)
-Heavily taxed,
directly & indirectly -Hardly taxed at all
• Moral? -‘Blessed are the rent seekers…’?!

T’was Always So!
When the goose was stolen from the common,

They hanged the man and flogged the woman;

But they let the greater thief go loose,

Who stole the common from the goose.

- circa Great Enclosures (1760-1820)

The Rent Penny Drops
• Tom Paine (1737-1809)
“It is the value of improvement only, and not
the earth itself, that is individual property.”

• John Stuart Mill (1806-1873)
“The increase in the value of land, arising as it
does from the efforts of an entire community,
should belong to the community and not to the
individual who might hold title.”

Local Hero
• Thomas Spence
– Born Newcastle 1750
– Supporter of Paine
– Advocated “common
ownership of land”
– Banned from Newcastle
Philosophical Society!
– Oft imprisoned, d.1814

National Hero
“Roads are made…services improved …while the
landlord sits still.Every one of these improvements
is effected by the labour & cost of other people… To
not one of these improvements does the land
monopolist contribute… He renders no service to
the community, he contributes nothing to the
process from which his own enrichment is derived.”

- Winston Churchill, 1909

Brain teaser
• What is the
world’s biggest
selling and most
translated non-
fiction book
ever published,
which is still in
print today?

Brain teaser
• What is the
world’s biggest
selling and
most translated
non-fiction book
ever published,
which is still in
print today?

‘Progress & Poverty’
• Seminal work
(1879) of American
Henry George
(1839-1897)

• “There is, in nature,
no reason for
poverty.”

By George!
• ‘Economic Rent’ is the natural fund
for public services & infrastructure
• Taxing Rent helps properly value &
conserve finite natural resources
• Every dollar recycled from Resource
Rents means one less from labour
• Removing labour & capital tax frees
workers & stimulates creative growth

‘Land Value Tax’
• Charge on the economic rent of land
• Owners use their natural monopoly
as they choose, & pay for the privilege

NATIONALISATION
NOT NECESSARY !

Advocates
• Alfred Russel Wallace
– “The most remarkable and important book
of the present century."

• HG Wells & George Bernard Shaw
– Cited Henry George as main reason they
became Socialists (though George wasn’t).

• Leo Tolstoy
– “Solving the land question means the
solving of all social questions.”

Chequered History
• Lloyd George’s 1909 People’s Budget
– Defeated by Lords, leading to Parliament Act

• Labour’s 1931 Budget
– Overturned by Tory government in 1934

• Small scale municipal taxation
– Pennsylvania, Denmark, Australia

• Hong Kong…

Other supporters
• Albert Einstein

• Sun Yat-Sen

• Milton Friedman

• William Vickery
(1996 Nobel prize
winning economist)

Detractors
• Landowners !
• Anyone landowners
could pay to smear
George & his ideas
– Economists
– Politicians
– Speculators / Bankers
• A rival author…

Marx’s Muddle
• “Abolition of property in land and
application of all rents of land to public
purposes.” - Communist Manifesto (1847)

• Discounted all non-man made value
to ‘prove’ labour the measure of value
- Das Kapital, Vol 1 (1867)

• Called George’s Land Value Tax idea
“the last ditch of the capitalist.”

Why Land isn’t Capital
• Land • Capital
– Natural resources – Always man-made
– Tends not to – Tends to depreciate
depreciate (unless maintained)
– Non-portable – Ultimately portable
– Finite supply – Variable supply
– Value unrelated to – Value largely linked
size/quantity to size/quantity
– No production costs – Production costs

What ‘Land’ IS
• Locational / Site Values
• The Radio Spectrum
• The Atmosphere
• Mineral Wealth
• Fresh Water
• Forests & Fisheries
• Any natural monopoly
• Community-created values…

Radio Spectrum
• 3rd Generation mobile
phone bandwidth
auction in 2000
raised £22 bn

• In 2025
government can
auction value again
…and again and again

Airport Slots
• Take off & landing
slots at UK airports

• Single slot-pair sold
in 2004 for £10m

• Potential revenue c.
£5 bn per year

Emissions Permits

• Used to ‘cap & trade’ pollution rights

• EU gave away its permits in 2004,
effectively privatising atmosphere!

• 60% permit auction from 2013?

• Potential to replace VAT, EU-wide

Jubilee !
• 1999 Jubliee Line Extension
• Total cost £3.5bn (5% private)
• Residential land uplift c.£9bn*
• Commercial land not assessed,
but c.£2bn just for Canary Warf

* Transport for London report

4 Canons of Taxation
• That it bear as lightly as possible
upon production [enabling growth]
• That it be easily & cheaply collected
[efficient, with direct incidence on payer]
• That it be certain [minimising opportunity
for corruption and/or evasion – i.e. effective]
• That it bear equally [giving no advantage
or disadvantage, so being equitable to all].

- Adam Smith, Wealth of Nations (1776)

UK Tax Assessment
F AI
• Enabling? L
– Income Tax, NI, VAT, Stamp Duty etc - all
‘deadweight taxes’ on productive activity
F AI
• Efficient? L
– Direct taxation collection costs fall on firms
F AI
• Effective? L
– The richest avoid a lot of taxes completely
• Equitable? F AI
L
– The poorest people pay the most!

Bad Tax Outcomes
• Productive work penalised
welfare dependency, poverty traps, crime
social breakdown, increased welfare costs
more tax/borrowing, debt, disease, death

• Rent seeking rewarded
land/resource speculation, price bubbles
housing shortages, unaffordable homes
inequality, instability, boom-bust, war

Bad in Principle…
• Income Tax / National Insurance
– Paid by firms on behalf of employees
– Business costs, passed on in higher prices
– Ultimately paid by end consumers
– Disproportionately higher impact on poor!
• VAT
– Penalises ‘added value’ on goods & services
– Regressive, like ‘direct’ employment taxes.

..& Practice Alan Bob
Gross salary £15,000.00 £150,000.00
Gross increase after
pension reduction £100.00 £90.00
Employers NI £12.80 £0
Total employer costs £112.80 £100.00
Employees NI £11.00 £0.90
Income Tax £20.00 £36.00
Total wages taxation £43.80 £36.90
% of wages taxes paid 38.8% 36.9%

“The Best Tax…*
• Land Value Taxation
– Encourages best use of the ultimate resource
– Increases land supply for new housing
– Encourages empty properties back into use
– Lowers rent and rates (if ‘revenue neutral’)
– Can’t be avoided, since land can’t be hidden!
– Can’t be passed on, so landowner must pay
– Reduces speculation – and boom-bust

*…we never had.” – Victor Keegan, Guardian

Global benefits
“Land Value Taxation
is the appropriate
instrument for the
urgent fight against
global inequality and
poverty…”

- UN-HABITAT/UNICEF
report (2006)

Economic Morality
• The linked crises of environmental
degradation and the destitution of a
third of humanity are not failures of
economics, or of markets, but of
governments permitting the private
appropriation of Economic Rent,
which is morally owed to the people
from whom its value derives.

BIG MONEY
• £744,000,000,000 (£744bn)
= UK’s net national debt at March 2009
• £84,000,000 = Daily interest on this debt
(£118m/day by 2010-11 or £43bn/year)
• £1,460,000,000,000 (£1.46 trillion)
= Total UK personal debt at March 2009
• £232,000,000,000 (£232bn)
= Total personal lending for last 12 months

small change
• £21,580 = Average UK household debt
(excluding mortgages).
• £30,471 = Average owed by every UK adult
(including mortgages).
• £1,200,000 = Increase in UK personal debt
per hour during March 2009.
• 17.6% = Current average UK credit card
interest rate (17.1% above base rate).

Human Costs
• 23,000 = Current average number of UK
redundancies, per week.
• 7,241 = New CAB debt problems, per day.
• 10 = Current average number of minutes
between UK home repossessions.
• 4.5 = Current average number of minutes
between UK personal bankruptcies.

The
Continuing
Great
Economic
Conundrum

…why is there Never
Enough Money?

Two Types of Money
• Legal Tender
of ly and sold
3 % up p
– Notes & coins issued by government
<for onward circulation,
to banks at face value ey S
free of debt M on

• Credit of
7% pply
– Issued by private banks 9 interest-bearing
> as Su
ney
debt and deposited into customers’ accounts
Mo
under ‘fractional reserve banking’

‘Fractional Reserve’
• Formalised by charter establishing
Bank of England in 1664

• In practice <10% of depositors likely
to withdraw gold at any one time

• ‘Promise to pay’ notes safely* issued
at many times gold reserves held

(*excepting a ‘run’ on the Bank!)

Banking Alchemy
• ‘Credit’ is thus created
from absolutely nothing

• Almost all money now
loaned into existence as
interest-bearing debt

• Reserves are now ‘gilts’
(Govt. promises to pay)

So…
Banks are actually
Credit Institutions,
creating Credit as
interest-bearing
loans....

...forming…
an inverted Credit
Pyramid, on a base of
‘Regulatory Capital’...

...moreover…
this debt-based
Credit constitutes
over 97% of the
Money we use...

…meaning…
Banks don’t lend
pre-existing Money…
of ly
< 3 % up p
yS
M o ne

…but…
Create new Money
from thin air…
of
> 97% upply
on ey S
M

…which…
is Deposited back
into the System…

…generating…
‘interest’ for the
Banks; wealth that
is completely
unearned.

Unearned Wealth

‘Economic Rent’

Summary for us lot:
“Bankers own the earth; take it away from
them but leave them the power to create
deposits, and with the flick of a pen they will
create enough deposits to buy it back again…

…if you wish to remain the slaves of Bankers
and to pay the cost (1880-1941), Governor of the
- Sir Josiah Stamp of your own slavery, let
Bank of England prior to the Great Depression and
them continue torichest man in Britain at the time
the second create deposits."

So where has all the
Money gone?

Fuelled by soaring
Property Prices…
(a direct function of the uncollected rent of land)

…Demand for Credit
(i.e. debt-money)
grew so much…

…that Banks began
outsourcing their
‘promises to pay’ to
Reduce the Risk...

…using Equity
(i.e. shares) to
support more
Credit Creation…

…then selling
“mortgage-backed
securities”…

…and high risk
“Credit Derivatives”…

…so Banks could meet
capital requirements
for even more loans…

…which grew…
More Debt

Debt

Equity

…and grew…
More Debt

Debt

Equity

Yet More Debt

More Debt

…and grew…
Debt

Equity

Yet More Debt

More Debt
…to
…and
be Debt
diced…
sliced… Equity

…until no-one knew
where the risk lay…

…the banks
stopped lending…

Government response
• Multi-billion bailouts
• Trillions worldwide!
• Hope: banking liquidity
• Use: re-capitalisation!
• Cost: the mortgage* of
future generations to
mass, unsustainable tax
that, under the current
system can only be paid
by taking on more debt!
*“Death-Grip”!

The single most…
…important step
that Governments
should have taken
was to make any
bailout conditional
on writing down
the value of loans
to reflect the real
value of property.

Quantitative Easing
• How Central Banks
deal with liquidity
(shortage of money)
without waiting for
a bank recovery.
• They issue it direct!
– Ideally by spending it
straight into circulation
through capital projects

Debt-free money!
• Issuing money free of interest-bearing
debt is what governments should do.

• Governments do not need to borrow
their own currencies from private banks!

• Inflation is NOT caused by “too much
money chasing too few goods”, but by
too much DEBT-MONEY issued by banks
(and in hyper-inflation cases, by devaluation
caused by massive currency speculation etc).

3 possible policies
• Nationalise UK Banks

• Introduce a ‘Credit Creation Charge’
– Banks taxed on sterling issued over and
above what they attract in deposits

• All sterling issued by Bank of England
– Private banks buy sterling credit at base rate
for onward lending and/or investment

Policy isn’t critical
• The Principle IS
– Sterling belongs to all UK citizens. Our
acceptance & use of sterling gives it value.
– Banks have no moral right to add ‘interest’
to sterling they haven’t taken in deposits.
This is unearned wealth, i.e. Economic Rent.
– Economic Rent is the one source of wealth
that belongs to all of us; “Common Wealth”.

So…
• To stop housing
being used as
an investment
vehicle rather
than as homes…

…and…
• To kill the
poverty caused
by speculative
& inflationary
bubbles…

…and…
• For debt-free
growth that
doesn’t penalise
work or distort
markets…

…with…
• World-wide
social, political
& environmental
dividends…

RECOVER & RECYCLE
ECONOMIC RENT

16/07/09 108

…so all can share in our
Common Wealth!

‘Golden’ Economics
• “Satisfy others’ needs & wants
as you would want yours satisfied.”
(command economy?)

‘Platinum’ Economics
• “Satisfy others’ needs & wants
as they would want theirs satisfied.”
(market economy?)

Common Wealth!

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