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I caught in my logs the other day someone visiting my blog from Tristan's piece way back in October about his "Essential reads". He was very flattering about my blog, but I do remember now reading it first time and wanting to defend myself against his suggestion that I was possibly the "LibDem version of a gold bug, seeing LVT as a solution to many problems as a gold bug sees a gold standard".

I admit, occasionally (well maybe more than occasionally for some) LVT seems like a religious belief, and as such one can be very zealous about it and make claims that others feel unwarranted. I know that a much more vocal LVT campaigner (yes, there are some!), Labour Land Campaign's Dave Wetzel, managed to put off a member of their NEC who works in my office because she could not believe that something for which so many beneficial claims were made had not been properly tried before now. And it is also true that for many years, the Lib Dem's own campaign group on such subjects, ALTER (Action for Land Taxation and Economic Reform), of which I am secretary, has focussed more or less exclusively on LVT to the exclusion of other "Economic Reforms" - indeed it has been suggested that "Economic Reform" was only included in the name to make a better acronym!

I hope we will see in 2008 ALTER and with it hopefully the Lib Dems more generally, taking a bigger interest in other economic matters. Already there are suggestions about a book of essays, similar to the Orange Book or Reinventing the State, covering all sorts of aspects of what I like to call the "Liberal Economic Tradition" (I use such a phrase because "economic liberalism" or "neo-liberalism" have all but been hijacked as pejoratives for "beggar thy neighbour" economics which is an utter travesty of the rationale of economic liberalism). We are circulating a motion on seignorage reform in the light of the Northern Rock bailout for Spring conference. And so on.

Indeed my own journey to Georgism was sparked not by an interest in LVT originally, but by reading about the debt-based privatized credit system (I could just as easily be a real "gold bug" or at least a "hard money bug"), with forays into Social Credit and similar ideas. I have said and written many times that economic liberalism is about rooting out and preventing unearned privilege. If anything is key to this it is not land per se, but an aversion to monopoly, especially monopoly conferred by government which benefits one group but disadvantages others.

But as with the late nineteenth century libertarians, anarchists and mutualists, land, in the economic sense of everything in the natural world that's just there, existing without having to join one's labour or capital to it, often finite in extent and needed for survival by most creatures on the planet, is one of the four big monopolies that underpin entrenched privilege. And whilst the others, money and the cartel that creates (and limits) credit, tariffs on trade imposed usually by governments and intellectual property are also crucially important, a better understanding of the proper relationship between humanity and its one planet and its resources is a key way to break some of these others.

It's not necessarily an a priori solution - that LVT must go before reform of these other three - but it enables, especially, the breaking of the tariff and protectionist monopoly by providing a more healthy way of government raising money that has a smaller (and mostly positive) effect on trade and economic activity than taxes on incomes or sales. It also enables a wider discussion on money - if you take away, through LVT, the capital value of land against which so much of our broad money supply is secured you also need to think about how to replace that money supply via a fairer credit supply system. If one takes the Georgist paradigm to its fullest extent, as I do, it enables a new sort of social safety net in the form of the citizens dividend - the distribution of the value of land rents to all as a Citizen's Income as of right.

So, if I focus more on LVT than these others, it's partly because I believe LVT is more saleable at the moment than, say, a wholesale change in the way we allow money to be created, and partly because I understand it better than some of these other issues. But I regard all four as ultimately necessary to build a properly liberal economy and if I have one personal wish for 2008 it would be to more fully develop some ideas for solutions to the other three.

The air, the air, twas God who made the air,
The air, the air, that all of us must share,
Why should we be beggars when democracy's our heir,
God made the air for the people.

(with apologies to the great political song...:)

But it makes a point. The other day I said I wanted to return to one or two things that Chris Huhne said about climate change.

Apparently carbon trading is better than carbon taxing because, said Chris, the incentive of being able to trade away your surplus allowance and make some money is a bigger incentive than simply saving tax.

I'm not very happy about that from someone who is President of ALTER.

The air is ours. Collectively. The air is land. Yes, land. In the economic sense anyway. If we take some and use it (pollute it) and don't leave as much of as good quality for everyone else to have their share we are breaching Locke's Proviso. Clean air, therefore, has a potential economic rent. Why should we "enclose" some, in the form of some kind of carbon allowance, that someone can make money out of?

The mechanism of working out how much one has used is just the same as if one were trading an allowance, every process is still going to have to have a carbon tariff. But it is all of us, collectively, that benefit financially from overuse and increasing air/carbon values. The incentive lies in devising processes that will use less than your competitors and therefore enable you to make more profit from your activity.

Why is that any less an incentive than trading away your surplus of something that doesn't belong to you in the first place? Carbon taxing is just as much an incentive and philosophically and ethically better justified.

The "other side" of my interest in Land Value Tax is the role of land values in the money supply. Remember the money supply? We kept a close eye on it through most of the eighties, thanks to the notion that the inflationary pressures of the seventies were caused by government creating too much "base money" - the cash created, at virtually nil cost, by the Bank of England.

It became the prime target of the monetarists - control the money supply and you control inflation - that song again comes to mind from the 1979 General election campaign - "We'll count our blessings if we apply/Tight control to our money supply".

So who do we think creates the money in our economy? The crinkly stuff we increasingly rarely keep in our pocket or wallet of course is created by the Bank of England. Nowadays it doesn't have any backing in gold. But still, it's in quite short supply. In fact, there's only about £45bn of it in existence. It's the "M0" figure in this table.

So, how do we maintain an economy that turns over nearly 27 times this in GDP? Where is the money, the units of account that actually account for all this economic activity? Well, they're a fiction, existing merely as data in one or other of our banks' computers and pixels on a screen. In fact, there is nearly £1.5 trillions (thousand billions or million millions) of this debt money in the system at any one time. How did it come about? It's all borrowed into existence. All except that M0 figure of about £45 billion.

So only about 3% of the money, the units of account, at any one time existing in bank accounts is this base money. Who creates the rest? Even though you expect it to be converted, if you will, on demand into real green and crinkly stuff, it is actually simply created when someone borrows money from a commercial bank.

So there's the first anomaly. We may believe that the money in the economy is created for us, for nothing but the administrative cost of doing so, by the Bank of England, actually 97% of it is created by private commercial bodies. Banks. And for the privilege of having them create our money instead of the Bank of England, we pay anywhere between about 4% and 20%+ for it each year, in interest. And even though it is created effectively in our name (because it's convertible, seamlessly, with the real stuff), we have virtually no control and certainly no accountability over who it is created for or for what purpose.

Ah, many people cry, but surely the banks' balance sheets balance - they have as much in deposits as they have in loans don't they? Well, on paper they might, but there has to be at least 97% of those deposits themselves that came in turn from someone, somewhere, borrowing. Well, all that tells us is that most of that money supply is in fact permanent. You may borrow it for a few months or years, you may repay it at the end of that period, but in order to maintain the required number of units of account to oil the economy, someone somewhere has to go on borrowing it.

And this is where the speculative value of land comes in. Most of that borrowing is down to us, individuals, and in particular those with mortgages. Mortgage debt makes up about two thirds of this total money supply. And, the sharp eyed amongst you will realize that in order for us to maintain that level of borrowing, over time land values must increase so that we end up being paid more than we have borrowed when we sell our homes. Otherwise we'd all soon be bankrupt. Because vendors have, even if they don't appreciate it, a monopoly on the location they want to sell, the purchasers can be induced into bidding it up - basically in order that the levels of borrowing meet the demand for money in the system.

Yes, you are right, it is a house of cards. More than that, it is a confidence trick. We believe our money is created by the Bank of England, against the "full faith and credit" of the people and economic activity of the UK. In fact, the price we pay for housing, being mostly land value, is talked up in order to ensure there is enough borrowed money in the system. There was a seventeenth century Scotsman, John Law, who was outlawed across half the known world, for trying to pull the same confidence trick on the people of France who needed a new way of backing money in a financial crisis - it was ultimately all tied up in the foundation of New Orleans, incidentally - Law's land based money was used to develop Louisiana.

Why mention this now? Well, in today's Times there's a report that the Bank of England is now a little concerned about the amount of this lending in the economy. That it is likely to fuel inflationary pressures - more money, based on land rather than production, chasing the same amount of production, is inflationary. The requirement to repay that money stock over and over again with interest means that ever more has to be created.

Debt money is more inflationary than base money. Base money used, in the sixties, to account for more than 20% of our money supply. Now its just 3%. All the complaints in the seventies and eighties about money supply growth were focussed on the nasty Labour government creating base money not for funding more production, but for funding more demand by paying workers, mostly public sector ones, higher wages to cope with existing inflation. But the real problem is that creating more base money, in this devil may care world where the commercial banks use that effectively as margin to lend however much they like, means that exponentially more debt money can be created. Which is the real threat to inflation and stability? The debt money of course. There's vastly more of it. It grows faster, both in percentage terms and in absolute terms, and it costs much much more to service. Because base money only costs what it costs to produce - a half a percent for printing if notes, even less for administration if it could be done, as the commercial banks do it, electronically. As opposed to the annual 4% and more for commercially created money.

This debt money erodes our futures. It is why we have to relentlessly pursue growth. And finally, the Bank of England is showing some sort of concern about it - it's grown four times faster than the economy this year alone. But what could they do? This is where Land Value Tax comes into it for me.

If you tax land values, if instead of expecting people to pay 100% of the value of land up front to the previous owner, who did nothing to create that value as a landowner, which creates a need for this vast borrowing just to give us the basics of shelter, and instead collect that value annually over the lifetime of someone's occupancy of that land in the form of land value tax, you would deflate land values, vastly reduce the amount of debt money that has to be created to finance it, and leave a gaping hole in the money supply. A gaping hole that the Bank of England could fill with cheaper base money.

It already does all the sums required to make sure that it doesn't create too much. What does it do with those calculations at the moment? Well, it tries to moderate the amount of money in the system by tinkering with the interest rates at which it is borrowed into existence - the base rates. It is tackling a symptom and not the cause. And in doing so it acts against the economy - just when the economy needs a bit more liquidity in the system to finance "good borrowing" to prepare for the next phase of growth in real economic production, it has to tighten the supply - so companies and others investing before they make new wealth from the results of that investment have to pay more for it. It's quite bonkers really. But it makes a lot of people rich and creates a lot of vested interests. So it goes unchallenged. But it is us that pay for it ultimately, in higher goods prices, in higher land prices, and in all the interest that this debt mountain accumulates.

They could instead use those sums to actually inject real base money into the system, if they would only have the balls to set limits on the commercial banks so that they did not simply take that new money and create 30 times the amount in debt money. None of this would harm the commercial banks particularly. They would have to shift from being creators of money, our money, to being brokers of money, moving it from people who had it to people who needed to borrow it. All stuff they used to do much more of before we set them free to write their own pay-cheques at our expense.

Land Value Tax could be used then to fine tune that system, since any excess would likely find its way into uplifts in land values.

It's a multi-step process:

1. Bank of England works out, as it does now, the total amount of money required for the economy to function, to reflect the liquid wealth of the nation as a whole.

2. Instead of letting the commercial banks do it all, the Bank of England creates that money, and allows the government to spend it into existence. Either as infrastructure or supply side spending, or perhaps as a citizens' dividend - a lump sum entitlement each year to every citizen or resident in the country to spend as they want. Of course one would likely want them to do simple things like pay off the national debt first.

3. Bank of England uses interest rates as now and bankers' reserves as previously to moderate how much of that base money can be used to create more debt money by commercial lenders. All their other lending business has to be financed by matching savers against borrowers, as the building societies had to do until 20 years ago.

Result - we have a more stable monetary base, better controlled, and less speculative land value growth. Putting publicly created money and land value tax side by side, we could probably whittle away at the requirement for taking our earnings off us in the form of tax, such that we could probably quarter, in the end, the overall tax take.

Now, with that on offer, why does nobody want to listen?

Mortgages fuel surge in supply of money - Business - Times Online:

Mortgages fuel surge in supply of money
By Graham Searjeant, Financial Editor

BRITAIN’S money supply is growing at its fastest rate for 16 years, the Bank of England revealed, as mortgage approvals return to boom levels and consumers start to borrow more on credit cards again.
Annual growth in M4, the broad money measure that includes bank lending, reached 14.5 per cent in September, up from 13.7 per cent three months earlier. The surge comes only a week before the Bank’s Monetary Policy Committee (MPC) meets to consider a new Inflation Report and decide whether to raise interest rates for the first time since August.

The MPC ignored money supply for the first eight years of its existence. In recent months, however, some members seem to have become anxious that the relationship between money growth and inflation will reassert itself.

There's lots of stuff in the weekend press about the government's plans to tackle housing shortages. The Observer runs with "It's housing, housing, housing as Brown builds a new vision" and is typical of the genre...

"The new Prime Minister has signalled his intent by kick-starting what could be the biggest building programme for 30 years, writes Nick Mathiason

"Sunday July 15, 2007
"The Observer

"Since 2000 Labour has promised a major change in the number of new homes. Headline-grabbing announcements from ministers came and went. But though Britain is now in the midst of the most prolonged housing price boom ever seen, the number of homes built annually has hardly shifted from 80-year lows of about 185,000 a year. Meanwhile, whole swathes of the population have been priced off the housing ladder.

"To remedy a chronic supply shortage, last week Gordon Brown unveiled plans to build 3 million homes by 2020. While it is easy to dismiss his announcements as yet more froth, Whitehall officials, housebuilders and regeneration specialists say radical reform and even action is in the air."

Yet, as Tristram Hunt points out in his defense of nice views for the haves against housing for the have-nots (the BANANA argument), we are told by other government figures that there are at least 65,000 hectares of derelict or underused brownfield type sites in urban areas (which is space for 2.6 million of the three million Gordon wants to see built at current urban density guidelines of forty per hectare). While Anne Ashworth, in Friday's Times, reported that the PropertyFinder website claims that 420,000 homes stand empty in disrepair in England - enough, you will notice, with the underused urban land figure, to complete Gordon's 3 million properties without putting a single JCB into the greenbelt.

Low density	High density
Which would you prefer?

But also, we have to realize that there are not 1.5 million households (the council house waiting list) out on the streets. They are mostly living somewhere - often in overcrowded and/or unaffordable conditions. Whilst research also suggests that up to 46% of all housing is "underoccupied" - with 2 or more unused bedrooms, and that contrary to the usual cris du coeur that people should be allowed to stay in their family home regardless of how empty it is, 45% of households aged 50+ say they are open to the idea of downsizing before or after retirement - though most don't and cite a lack of suitable local properties to which to downsize into as the main factor.

All of this suggests that the better way to address current housing needs is not in fact to build net new units on virgin land at all, but to promote policies that bring empty homes into use, derelict land into bloom, and remodelling of existing communities so that the needs of different ages, for downsizing as well as for growing families, can better be accommodated without chucking anyone out to the farthest flung edges of a new suburban edge of city sprawl.

But, as the TV development programs tell us, location, location, location is what matters. We are a small island. It doesn't take long to get practically anywhere. We also need mechanisms to promote natural population movement to areas that are now economically down at heel and suffering from blight - since it would probably be a good guess that most of the empty homes and a high proportion of the unused urban land is in such areas.

And here it is not just land use policy that could make a huge difference. Many international inward investors want to be near to their global markets - which means proximity to ports and airports; much of the concentration of high tech businesses in the "western arc" of the South East region is put down to proximity to Heathrow - they are competing not with Hull, but with Silicon Valley or Osaka. A proper market in landing slots encompassing all airports in the UK could make a big difference to the viability of international traffic into regional airports, and so also attractiveness for international businesses to set up around those regional airports instead of around the London ones and bring employment, and therefore housing demand, out of the South East to those airport hosting regions.

But in the final analysis, the only measure that could achieve all of these in one, together with providing a replacement revenue stream for both local and national government, and recovering government and community financial inputs to localities from the beneficiaries who see their property values rise with regeneration money and so on (Sarah Beeney et al will explain it no doubt - it is fact not conjecture), is Land Value Tax.

All other things being equal, if your corporate tax bill (or even your competitor's) in, I don't know, Bolton, is a quarter what it would be in Bracknell, and your wage costs are a quarter less because your employees don't have to pay as much for that most basic of life's needs, a home, given the chance, wouldn't you, or rather your shareholders, jump at the chance for that extra post-tax profit? And, on top of that, your investment in that low value area would be far better for that area than continuing welfare payments because of a lack of economic opportunity for the people who live there - saving huge amounts of current government redistribution welfare payments.

Land values are by nature unearned by the occupier. They are created by the growth (or decline) in the popularity of a location, the expenditure of others, including government, that goes into the services and infrastructure that creates that popularity, and the effective monopoly current occupiers have in a location. Property values are also a "false" kind of wealth - for most people, those who live in their one and only property, they only really matter in relation to their next desired home. Those land values then, are a supremely appropriate thing on which to base a tax. And the non-doms, currently the fashionable whipping boys of the property market, cannot escape them to boot.

Who could possibly ignore an idea that claims to be able to achieve all of this with one simple reform. No more forcing urban expansions where people don't want them. Lower welfare transfer payments because of a more balanced regional economic outlook. Recovering money spent on an area from the people who benefit most from that expenditure. Lower housing costs. More efficient use of the housing we've got. And encouraging redevelopment of blighted areas or underused land. It's win-win. A no-brainer. A one size really does suit all package.

Technorati Tags: affordable housing, house building review, land value tax

...but strangely intensely exciting at the same time?

I'm just watching the news on Channel 4 and they've got all this coverage of the squirming going on in Washington and Wall Street.

Is it just me or am I right in the impression that Privilege and Power is absolutely terrified at the moment? That "they" really believe things are on the edge of a precipice which threatens systemic melt-down or revolution?

And also that there is a real massive popular movement going on to get the message across to "the Hill" that "they" will not be forgiven for allowing "our" money to pay Goldman Sachs bonuses.