The Henry George remedy was not to socialize real estate, just economic rent on land. Henry George still believed the free market should still valuate and distribute land. He just wanted to collect the economic rents on land, rather than collect taxes on wages, to fund the public need. The public rather than the owner of land would collect economic rent, taking the feudalism out of land ownership. There is a difference between law-made property and labor-made property, as there is a difference between unearned and earned wealth. Geolibertarians want to further distribute collected land rents, which is law-made wealth, directly to the people as a citizen dividend, respecting the citizens as equal and joint owners in common of the land, regardless of who holds law-made title for exclusive use of lands. The owner of land should pay rent to the citizens for claiming exclusive ownership of land.
Likewise, the Georgist remedy is not to socialize credit, just monetary interest. The free market should still valuate and provide credit. However, the financial interest of money itself, monetary interest, should be used to fund the public need and benefit the tax payer since legal tender is law-made property. Public monetary expansion, especially the monetary expansion necessary to facilitate trade and full employment and necessary to prevent deflation, can fund the public need rather than the usurer. You do want to separate the monetary supply of legal tender from credit markets with full reserve banking. You do want a separation of the free market of credit and commodities from the law-made property of legal tender. The money supply should have regulated and stable value. The value of commodities and credit should reflect changing supply and demand without the corrupting influence of money supply.
The Congress can set a target inflation rate when determining the budget so that the public may debate on the public budget. The target inflation rate should cancel financial interest on savings. People would avoid the cost of inflation by investing it or making the public money supply available for credit in a savings deposit or trade on money markets, maximizing monetary velocity and by reducing the volatile valuation of money due to idle money. Inflation allows and promotes production and job creation. Inflation does not need correction when untied from credit. If used to provide funding of the public need, it also ends national debt and stops usurers from using national debt to collect financial interest from the tax payer. The cost of inflation on money in your wallet can also be socialized and made more progressive through funding a citizen dividend.
There is a subtle caveat among the religions of Christianity, Judaism, Islam, Hinduism, and Buddhism in regards to usury, where there is debate on how far usury should be prohibited and if it should prohibited. Islamic law addresses this through the socialization of credit. Previous movements in all of the major religions also focused on the socialization of credit. Interest is not charged on credit when credit is socialized, which also socializes losses on bad credit. This harms markets for credit, limiting supply and demand, as well as valuation of credit. It also places a burden of cost on savers and those who pay off debts.
Credit in itself is not sinful. What is sinful is the financial interest charged upon money supply in a credit-based or commodity-based monetary system. The scripture in the religions all speak of usury as sinful, specifying interest on the money supply as usury, though there are loopholes in the scripture of the various religions. The loophole was that credit was still important. Business, small and large, may still need a loan to produce real capital, earn real interest, and employ real wages. Your brother, sojoiners, and strangers may still need a loan. The market should still be free to provide different forms of credit, whether it is the usury-free credit of a credit union, the real interest of an investment bank selling bonds, or the value-added service of a commercial bank.
Hi Keith,
Thanks for the clarifications. So how would Georgism deal with Wall Street speculation? Don’t you think JPMorgan would prefer to pay a land tax rather than capital gains, income or sales taxes? Or worse yet, lose the cheap flow of Chinese, Mexican goods and Mideast oil on which to speculate? I don’t doubt there is a lot of merit to increasing the tax burden on land and decreasing it on income – but where is the point of diminishing returns?
- I downloaded “Progress & Poverty” and CH Douglass’ “Social Credit” so I can understand exactly where all this is coming from. I agree with some of the principles as far as they go, but am very skeptical as to why they seem to leave free trade and speculation out of their equations.
- From what I can tell about George, the effect (and perhaps aim) of his program is an attack on “Lincoln-ism”, rather than to serve as a remedy for 2012. In 1880, there was no income tax, and the US government was funded by 32% protective tariffs and corporate taxes. Here’s a good chart:
http://en.wikipedia.org/wiki/Tariffs_in_United_States_history
- Why would George have been agitating in New York City for land taxes? It seems to me this was very much to the benefit of the financial community (Wall Street and London), and very much to the detriment of the railroads and industrial interests, who were the engines of the economy and the key forces keeping protectionism in place.
- I smell a rat, but I’m willing to go crawling through the sewer to find it :)
good question. i think a citizen dividend, monetary reform, and land reform would certainly help in all other matters since these are the most fundamental. speculation on things like oil and international trade is certainly important. however, i have not reached any conclusions about these things.
i have suggested a progressive sales tax if a supplemental tax is necessary simply because it is a simple way to impose a uniform and flat tariff, as long as it used with a citizen dividend to help bring about justice for injustice. a progressive sales tax on imports/exports without domestic taxation would be suitable if it was low enough. however, there is no real clear answer just because it would be difficult and prone to corruption and harm if you did more.
in the distant past i’ve suggested to ban commodity trading unless delivery is taken. however, i’m not sure if that would make things worse or not. often times things will happen that will be destructive to the economy and will need to adjust. if fundamental things are addressed, it would be easy for people to weather the adjustment. a keynesian approach might be appropriate to engage in a little extra inflationary spending, such as funding public projects to get people working or offer a higher citizen dividend.
don’t limit yourself to henry george. the land issue is a fundamental issue recognized by many, including the bible and the classical liberals. henry george just made the issue popular. you might want to look into the physiocrats and david ricardo. with land value tax, you aren’t taxing the development, just the undeveloped value of the land, the unearned wealth, the law-made wealth by way of state title to exclusive rights to land. it promotes efficient use of land and prevents land monopoly. if someone does monopolize land, they have to pay rent to everyone else. the banks would hate owning a lot of homes if they had to pay taxes on the land for it to sit idle. industry would rather pay a tax on the land value rather than the developed value since they are actually using the land efficiently.
it is important to understand the law of rent. if you fully tax economic rent (land values), it would create free land.
Thanks Keith,
I’ll keep looking into all this, and have a number of ideas floating around for blog posts. I’m working on something about the history of tariffs, but want to come back to this issue.
I’d be interested to look into the history of land reform just from the perspective of a government placing a cap on total acreage allowed, even going so far as seizing, nationalizing and/or redistributing corporate- and absentee-owned land. I know there are some recent examples in Africa and South America, but I’m not totally clear on the details of Lincoln’s Homestead Act or any examples from Europe.
This seems to be a big problem. Did you ever check out my article on parity pricing? I think government control over commodity pricing (using price floors based on production cost) is essential, but I’m guessing you’d need to do something about land ownership to prevent a speculative bonanza on farmland.
Anyway, keep up the good work…
you really have to fix the fundamental problems first, land and monetary, and they’re equally important. if you fix one without fixing the other, things will be worse. as far as land, the best solution is to tax land values and issue a citizen dividend. anything else is prone to corruption and the ineffective goal of making free land available. you can go with the biblical land lease and issue free land leases of all the land that didn’t lease. lvt and land lease are basically the same thing.
speculation does have an important role of making sure supply meets demand. which is why i don’t think requiring delivery will help much. it would be too much of a burden on the economy. when prices do surge, in theories, those with stockpiles of the commodities will sell them off.
the problem with tariffs is that they have a history of corruption and tends to hurt economies overall. while i do see the importance of fair trade. cheaper imported goods aren’t necessarily bad.
Great article.
I go along with you a long way. Except for a full reserve banking system: the Money Power will own the entire money supply again within 20 years if we start over debt free and create an interest based full reserve banking system:
http://realcurrencies.wordpress.com/2012/01/05/debt-free-money-alone-does-not-solve-compound-interest/
The problem is not credit, but interest. A brokerage is better than a full reserve banking system. People can put their savings in the brokerage, which can use the deposits to invest. Depositors can share in the profit if there is any, but they’d also suffer the losses if the investment goes bad.
So the brokerage is closer to Islamic Banking than to interest bearing full reserve banking.
Another problem with interest is that the price of credit grows with the length of the loan. That makes long term investing in an interest based environment almost impossible.
Just think of a cathedral: it took a century to build one. We want to build things like that today too, but we can’t because the cost of money is so atrocious. 5% per year is already 500% of the principal over a century, and that’s when it’s not compounded.
Another example is a mortgage. Even at a low 3% you’d pay 100k interest over a 100k mortgage over 30 years. Way to high and completely unnecessary.
Interest’s side effects are so annoying I’d say we need to get rid of it altogether.
just eliminating the national debt, taxation on wages, and creating money debt free would go a long way. eliminating economic rent would go a long way. if there was a true market in credit, things would be better. a public option in banking would go a long way. however, you still have to have credit markets. it would be nice to get rid of interest as it would be nice to get rid of rent. inflation due to government printing would help do that. people offer credit just to avoid the cost of inflation, not to profit. inflation reduces the cost of the loan in itself. inflation due to government printing is like a land value tax, taking the profit out of interest while funding government and while still allowing markets to put a value on credit and earnings. i understand what you are saying that it would be nice just to get rid of interest completely. however, people would use credit instead of earnings if credit was free and as good as earnings. earnings are meaningless if credit is free and unlimited. you also have other means of finance, direct finance, such as bonds.
if the money is created debt free and funds government without taxation, and if land value taxation and the citizen dividend made land virtually free, you probably wouldn’t even need a loan for a home. you could afford to work and rent until you have enough cash to pay cash for a home. you could do like the amish do and build one. the amish have nice homes, yet they don’t have mortgages, power equipment, nor money.
if we didn’t have to support government and usurers with our wages, we could easily afford mortgages with a stable money supply. if we had true free markets in labor-made property and socialized law-made property, where unearned wealth was taxed or inflated away and earned wealth was untaxed, things would be a lot better.
libertarianism is right that free markets are the way to go. unfortunately, libertarianism was usurped and corrupted in understanding by bankers and people like ron paul who knowingly fail to make the distinction that legal tender and land are law-made property. economic rent and monetary interest are two principle forms of unearned wealth which should fund the public need and not privatized for profits. wages and interest on real capital is earned wealth and should not be taxed to fund the public need nor stolen as monetary interest or economic rent to fund usurers and landlords.
these libertarians run around like they are all-knowing anarchists when they don’t even understand the basis of the anarchist slogan “property is theft”… that exclusive title and use to land is statism and the government declaring gold or any free market currency to be legal tender is statism and a corruption of free markets.
I go along with you 90% Keith, you know that. If things go the way you prescribe, I would not be pissed off enough to remain in this business.
But since we are at it anyway, I’m going all the way.
“i understand what you are saying that it would be nice just to get rid of interest completely. however, people would use credit instead of earnings if credit was free and as good as earnings. earnings are meaningless if credit is free and unlimited. you also have other means of finance, direct finance, such as bonds.”
The last sentence I agree with: there will always be a certain ‘financial market’ for ‘credit’ for more uncommon or risky ventures. This cannot be done interest free for a number of reasons.
You are also right that interest is pricing mechanism for credit and helps to avoid giving out too much credit: it’s reasonable to assume to assume that in an interest free credit environment demand for credit would be greater than a stable money supply would allow.
Therefore the amount of credit that is available should be shared by the people. It should be allotted in a fair and balanced way with just a handful of parameters to make it transparent. For instance: every American should have the right to get a $100K mortgage over 30 years interest free, something like that.
That would allow everybody to buy their own home, without a wealth transfer to the Plutocracy through interest. That’s the problem with interest: it eventually ALL ends up with the ultra rich.
i don’t have a problem if you want social credit. however, money supply and credit are two different issues and should remain unconnected.
By the way, you should see how the Protocols chuckle about taxing labor. It pits the elite against the common man and makes him hate the State.
It is a total disgrace of course. Whining about unemployment while taxing labor into oblivion.
The Protocols say taxation should be done on Wealth. Land is crucial in this regard, as you have pointed out, because taxation on land ends keeping the land in the family for centuries while keeping it unused.
But of course: taxing the wealthy would force these incredibly productive members of society to go elsewhere, right? We wouldn’t want that, would we? To see all the billionaires jump ship and take their beloved capital with them?
Oh my, where would we be, without the filthy rich needing shoe polishers and Ph. D.’s to wipe to their arse (aka: jobs) , right?
However: the Protocols also describe how the Money Power defeated the Landed Gentry exactly by taxing land.
In the case of ‘Earls’, ‘Knights’ and similar criminals this is not bad, even though it destroyed the power of balance in Europe in the favor of the Moneyed Aristocracy, but it’s still an interesting notion.
there is a difference in taxing land values and taxing property. you have understand that undeveloped land values have to be taxed near their 100% value to be effective in creating free land. a citizen dividend is helpful in making sure there is free land for all.