MONEY REFORM

By Dan Sullivan

Much of the discussion about money is amazingly similar to discussions about land value tax by people who had never really studied the issue. It becomes, largely, a battle of misconceptions, ignoring the central theories it pretends to dispute.

Assuming that a free market can handle credit without government issuing the money supply is very much like assuming that a free market can handle land allocation without government collecting rent. Both assumptions ignore the nature of the thing being “handled,” and ignore the source of the values being captured.

Even though we know money is not wealth, and that credit is the provision of wealth on faith that there will be a return, people speak of banks extending credit (providing wealth), when they merely issue certificates. It is the people who give real wealth or services in exchange for these certificates who are actually extending credit.

The real credit (giving of wealth for paper) is extended, not because the of creditworthiness of the holder, or even of the banks, but because advanced, sophisticated trade is impossible without money, and this is the only source of money, and because this money is accepted for taxes, and staying in business is impossible unless one can pay one’s taxes.

Thus, it is the community of traders that gives value to money, just as it is the community of traders that gives value to land. It is, therefore, appropriate for a democratic government, as legitimate agent of the community, to issue and redeem money, just as it is appropriate for such a government to collect and distribute rent.

The absurd argument that a bank does no harm because it lends out its money and recollects it (twice over every seven years), while an ordinary counterfeiter only spends it, has the matter backwards. That is, the ordinary counterfeiter only robs society once, when it issues the money. After that, the money circulates without obligations, and benefits society. The bank, on the other hand, snares people into forced debt, first by lending them what is not the bank’s to lend, and then by removing, as interest, a value that was created by society and rightly belongs to society.

Surely the counterfeiter, if he did not have to act surreptitiously, would find it far more profitable to lend his funny money into circulation once and live off the interest forever than to undergo the risk that attends to counterfeiting over and over again. One cannot get something from nothing, and whatever the counterfeiter or the bank gains necessarily comes at someone else’s expense.

Again, the land analogy appears, as we have all heard that the person who profits from land robbed nobody, because the buyer and seller voluntarily accepted the trade, just as parties voluntarily exchange money.

What is really happening, however, is the private collection of a value that rightly belongs to the public, because the government has defaulted on its obligation to collect that value on the public’s behalf.

Fears that government could not properly assess how much money to issue, like fears that government cannot properly assess land values, are based on self-serving distortions of history, calculated to prevent occasional and correctable errors in the public sector by sanctioning wholesale robbery in the private sector.

Thus, if government were to issue money directly, through spending or per capita grants, and if that were the only money accepted for tax purposes, there would be little point in private bank issuance. Private issues would be spurned by the trading community as unreliable.

That is, checks backed by the fiction of fractional reserve banking would become suspect, and all that would be required to virtually end it (besides the removal of government-backed insurance) is a statement on every check noting what fraction of the money registered to the account is actually in the bank.

Every merchant would prefer a 100% bona fide check over a fractional reserve check, and would discount the fractional reserve checks accordingly. The profits accruing to fractional reserve banks would then come, not from the community at large, but from the people who chose to deal with those particular banks, as it should be.

Thus, just as Georgism does not prohibit the private collection of rent, but merely pre-empts such collection through public collection, so could Greenbackism allow the private issuance of private money, but would merely pre-empt that issuance by issuing a fundamentally superior public money. Those who would prefer commodity notes, fractional reserve notes or any other kind of notes are free to accept them, but nothing would be so ubiquitously exchangeable as a soundly managed government note, especially if the government itself covered a large trading area and functioned as a sound institution.

Therefore, the only rationale for the issuance of money by private consortiums is the reality that government itself is so dominated by banking interests that it refuses to pre-empt their privilege by doing its job, just as the only rationale for land trust communities is that government does not preempt real estate privileges by collecting the rent.

The battle between Austrian and Keynesian economists, though sometimes painted as being ‘heterodox’ in comparison with ‘orthodox’ neoclassical economics is little more than a charade.

BBC World Service radio last night featured a very good run down on what both schools had to offer the world in its current financially strapped state. It included audio excerpts from the now famous ‘fight of the century’ between Lord Keynes and Friedrich Hayek.

I’ve previously featured the excellent video on this site, but challenged that it couldn’t possibly be the fight of the century when the champ, Henry George, was precluded from the bout.  George concerned himself with people and the planet – the combination of which makes up the real economy.

And Europe and the US aint going nowhere until governments introduce the real economy into their currently mistaken considerations.

So, like the video fight of the century, the BBC has also managed to exclude the Georgist school of economics.  After all, this devastating financial havoc WAS indeed initiated by real estate bubbles!

To underline this point, if you revisit my model here, you’ll see that Austrians and Keynesians, like neo-classical economists, have become too fascinated by the man-made moon on the left of the diagram, and are not getting to grips with the central real world economy, comprised of people and the planet, nor the natural moon of economic rent.

In a tightly packed audience I watched the Melbourne preview of Pria Viswalingam’s documentary film “Decadence” in cinema 10 at Carlton’s Cinema Nova last night.

With another in what’s likely to become a spate of films documenting this damning episode in human history, one trusts it won’t need to be buried in a bomb-proof container for some newly-emerging posterity to discover.

The well-travelled and talented Viswalingam features in the doco in the manner of the laconic casual observer that made his SBS “Fork in the Road” and “Wine Lovers’ Guide to Australia” series so interesting and enjoyable.

What with the financial collapse, and protesters milling against corporate greed as they occupy Wall Street, Pria VisW has decided the time is ripe to document the western world’s recent supremacy has come to an end.  I’d go so far as to say he’s correct.

Viswalingam invokes the late British historian Kenneth Clark to help us realise past civilisations have similarly managed to destroy themselves by the gradual decline in their morality and confidence.

He flits engagingly from hither to yon to present compelling evidence of the decay and imminent collapse of western society.  His visuals and sound are impressive, especially his outdoors audio which is not, but could have been, recorded in a studio.

Loved your reference to our economic “boofheads”, Pria!

Unfortunately, however, and despite having trained in the liberal arts at Cambridge, Viswalingam fails to pinpoint the mechanism identified by Pliny the Elder as being responsible for the collapse of Ancient Rome is also inextricably involved in removing the US from its occupancy of the economic pinnacle:  i.e. “Latifundia perdidere Italiam”. (The great landed interests destroyed Italy.)

Whilst the documentary is more far-reaching than “Inside Job”, I believe its reasoning doesn’t quite match up to Karl Fitzgerald’s punchier and more incisive “Real Estate 4 Ransom” as the explanation of western society’s collapse.  Pria is comparatively preachy and generalised in his opinions, but maybe I’m biased in favour of RE4R because I’m in it.

The difference is that, in identifying the rent-seeking catalyst, “Real Estate 4 Ransom” offers a belated means to avoid the catastrophe by reversing the process.  Surely, after all, it is civilisations that fail to evolve by correcting their mistakes that die?

It was a pity there was no Q & A after the session.  Although Pria did invite everyone down to Jimmy Watson’s, I chose not to go, whether out of laziness or not wanting to be seen to indulge in such decadence, I’m not certain; but like the doco, I’m sure it would have been enjoyable.

I’m a ‘Johnny One Note’ about the rent of our natural resources, because it’s the most important area on which the modern economist can most easily be proven to be completely misguided and wrong.

Yet it is to high level modern economists that the world’s nations entrust the levers that govern our daily lives.

Economic rent is deemed to be so unimportant by today’s neo-classical economist that he’s told he might just roll it in with the return to capital. Though it requires the suspension of disbelief, he’s been educated to say there’s no essential difference between nature and anything man-made.

Like watching a young child poking a piece of metal into an electrical power point with approval, this mistruth has long been an accident waiting to happen. And now it’s happening in spades as unemployment increases around the world.

As economies collapse like dominoes, the worthlessness of the likes of US presidential advisers Alan Greenspan, Ben Bernanke, Henry Paulsen, and Timothy Geithner has been exposed for all to see, and the ineffectiveness of the economic advice being given to European leaders is now also being questioned – for good reason.

These economists, mules packing a library as Henry George called them, didn’t know about, or else hid from the public’s gaze, how the privatisation of natural resource rents—owed equally to all the people—has impoverished all but the parasitical rent-seeking one per cent.

So, yes, I consider economic rent is very important.

As I’ve also played a small part in assessing the quantum of Australia’s land rent, I’ve accepted the burden of trying to get this overlooked truth out there.

There’s more work to be done in the area of quantifying land rent, but I’ve little doubt that in most other countries it’s similar to Australia’s, that is, some thirty per cent of the economy, and that natural resource rents other than land–including mineral, fishing, forestry, spectrum and flight path rents–would bring it close to fifty per cent.

Fifty per cent of the economy!  Yet neo-classically-trained economists can clot together, look you in the eye, and try to tell you it’s only from one to four per cent.  That lie explains why we are where we are.

The fox knows many things – the hedgehog one big one.
– Archilochus (c.650 B.C.)

Whether in the Arab Spring or the Occupy movement in the West, despots and governments are being challenged more and more by younger people and others imbued with a sense of fairness and economic justice.

They’re sick of being mercilessly ripped off by the system itself. It stinks. And printing more money is the answer to nothing. It merely delays financial collapse until governments’ last vestige of credibility has evaporated.

I see Egyptians are getting windy that the revolution against the Hosni Mubarek regime might have merely replaced him with the military. They want civilian government.

There’s no certainty, however, that any civilian government would capture the economic rents from Egypt’s well diversified economy. Why won’t yields on natural resources continue to be expropriated by a privileged few, thereby continuing to impoverish Egyptians? After all, as in the west, they’ve not been educated to the massive quantum of natural resource rents within the economy—in fact, text books claim it’s a miniscule amount—so they don’t understand public capture is critical for successful societal change.

Just as a change of government in western society doesn’t necessarily address the one per cent’s privatisation of most of a nation’s natural resource rents, Arab Spring revolutions lacking a program to capture for the public what is the public’s are likely to be revolutions in name only, and likely to be ineffective.

The genesis for overthrowing dictators in the Middle East has largely seen better-schooled Arabs completing their educations only to find there’s no employment for them: they’ve been locked out of job opportunities.

There’s something terribly wrong with any system of government where people willing to work are unable to get employment, even to work productively for themselves.

The ability to work should be as natural as the ability to breathe. Nobody intervenes to stop people from breathing, but people do preclude others from access to natural resources – although such access is a precondition for work. Rent-seekers monopolise and commodify natural resources, and if you can’t buy in at their price, then you’re simply left out.

We can only trust those working for societal change confront the almost invisibly small but powerful group of rentier kleptocrats found behind every dictator, behind every corrupt government.

These are the parasites feeding off the people’s economic rent and denying them a living. These are the people pulling the strings of government, influencing them to call in university police with the pepper spray.

As always, their aspiration is to maintain control of peoples’ lives through their private capture of the public’s resource rents.

ECONOMICS FOR ANGELA, NICHOLAS, ET AL, IN ONE EASY LESSON

.

.