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http://www.resurgence.org/resurgence/issues/robertson204.htm

    Economy

    FREE LUNCHES, YES:
    FREE MARKETS, NO

    by James Robertson

    Fairer sharing of the value of common resources is practical
politics, not just a utopian dream.

    from Resurgence issue 204

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IN RESPONSE TO CALLS for social justice and ecological responsibility,
right-wing libertarian economists have proclaimed "There ain’t no such
thing as a free lunch." They are wrong. The truth is that today’s world
offers free lunches on a massive scale. They are enjoyed by rich and
powerful individuals, businesses and nations.

Right-wing libertarian economists are also wrong if they think there can
be such a thing as a totally free market. Some markets can operate more
freely than others. But all are bound to operate within a social and
political framework of one kind or another. This is shaped by law,
taxation and public spending programmes — or, in the absence of those,
by the freedom of the powerful to diminish the freedom of everyone else.

One of the things I am talking about here is "enclosure". Historically,
enclosure of land has widened the gulf between rich and poor, and land
is still the most obvious common resource. But, as we shall see, there
are many others. The value of these resources should no longer be
enclosed as private property. It should replace many existing taxes as
the main source of public revenue.

But let us start with the real-world situation today. Pressures to
reduce existing sources of public revenue will grow.

    * Faced with increasing mobility of capital and highly qualified
people in a globalized economy, national governments will continue to
reduce taxes on incomes, profits and capital.
    * In ageing societies, opposition will grow to taxing fewer people
of working age on the fruits of their efforts in order to support a
growing number of "economically inactive" people.
    * Internet trading will make it more difficult for governments to
collect customs duties, value added tax and other taxes and levies on
sales — especially of products and services like music, films, pictures,
games, advice and information that can be downloaded directly. The
Internet will also make it easier for businesses and people to shift
earnings and profits to low-tax regimes.
    * International bodies like the Organization for Economic
Co-operation and Development and the European Union will continue to
press for action against tax havens. In 1998 the £400 billion invested
in British tax havens like the Channel Islands and the Isle of Man was
depriving the uk exchequer of £20 billion a year in tax. The $6 trillion
held in tax havens worldwide was resulting in lost tax, economic
distortions and criminal money-laundering on a huge scale. Here is
another reason for shifting tax off things that can migrate to tax
havens — like incomes, profits and capital — on to things like land
which cannot migrate.

THESE PRESSURES WILL reinforce the positive arguments for a radical
restructuring of today’s tax system — which is perverse, illogical and
unjust.

    * It penalizes employment and people’s rewards for work and
enterprise, but not the use of natural resources. So it perversely
encourages both the over-use of natural resources (including the
environment’s capacity to absorb pollution), and the under-employment
and under-development of human effort and skill.
    * It illogically taxes the value added by activities which meet
other people’s needs and wants, but not the value subtracted by the use
or monopolization of scarce resources.
    * It unjustly allows rich people and businesses to minimize their
tax obligations by the use of tax havens, family trusts, stock options,
"mixer companies" and other such devices.

Important common resources include

    * Land (its site value).
    * Energy (its unextracted value).
    * The environment’s capacity to absorb pollution and waste.
    * Space — for road traffic, air traffic (e.g. airport landing slots).
    * Water — for extraction and use, and for waterborne traffic.
    * The electro-magnetic (including radio) spectrum.
    * Genetic resources.
    * The value arising from issuing new money.

Their aggregate annual value is very great. Collecting it as public
revenue for the use of all citizens would go far to eliminate the need
for many existing taxes.

"Common resources" are resources whose value is due to Nature and the
activities and demands of society as a whole, and not to the efforts or
skill of individual people or organizations. Take land as an example.
The value of a particular land-site, excluding the value of what has
been built on it, is almost wholly determined by the activities and
requirements of society around it. For example, when the route of the
Jubilee tube line in London was published, properties along the route
jumped in value. Access to them was going to be much improved. So, as a
result of a public policy decision, the owners of the properties
received a windfall financial gain. They had done nothing and paid
nothing for it. They got a "free lunch". The absence of a site-value tax
on land is costing £50 billion to £90 billion a year to ordinary uk
taxpayers. Collecting the value of common resources as public revenue
need not be difficult. Last year’s auctions of licences to use the radio
spectrum for the third generation of mobile phones over the next twenty
years raised £22.5 billion for the uk government and about £30 billion
for the German government.

Another important potential source of public revenue is the value
created by issuing new money. The New Economics Foundation recently
published Creating New Money: A Monetary Reform for the Information Age,
co-authored by Professor Joseph Huber of Halle University in Germany and
myself. It proposes that all new national currency, e.g. pounds sterling
in the uk or the euro in Euroland, should be issued and put into
circulation by the government as public spending. (It is not about new
complementary currencies like lets or Time Dollars. Those are important
innovations, but different.)

At present in Britain less than 5% of new money is issued and put into
circulation by the government and the Bank of England as cash (coins and
banknotes). The remaining 95% is created by the commercial banks and put
into circulation as non-cash money in our current accounts. As J. K.
Galbraith has commented, "The process by which banks create money is so
simple that the mind is repelled. Where something so important is
involved, a deeper mystery seems only decent." The banks simply print
the money out of thin air into the current accounts of their customers —
as interest-bearing, profit-making loans.

Interest on these loans is estimated to give the UK banks supernormal,
special profits of £21 billion a year. The annual loss of public revenue
from allowing the banks to create non-cash money in that way is greater
— about £45 billion. Total banking profits from this source in the USA,
UK, Eurozone countries and Japan are about $140 billion a year. With a
free lunch on that scale, no wonder some of the cats get fat!

THE NECESSARY REFORM is in two parts:

   1. As national monetary authorities, central banks should create the
amount of new non-cash money (as well as cash) needed to increase the
money supply. They should issue it to their governments as public
revenue, and governments should spend it into circulation. To safeguard
against inflation, politicians should have no say in deciding how much
new money to create. Central banks should be democratically accountable,
but should operate with professional independence — as the Monetary
Policy Committee of the Bank of England now does.
   2. It should be illegal for anyone else to create new money
denominated in the official currency. Commercial banks will then be
limited to credit-broking as other financial intermediaries are —
borrowing, but no longer creating, the money they lend.

This reform will adapt the right of "seigniorage" to the realities of
the Information Age. It will restore the prerogative of the state to
capture as public revenue the income that arises from issuing money, in
an age when most money is issued as computerized information.
Traditionally, seigniorage was the profit enjoyed by monarchs and local
rulers from minting coins — the value of which was higher than the costs
of producing them. As, over several centuries, the physical
characteristics of money have changed from metal to paper to electronic
bits and bytes, and as banking practices have developed, the relative
importance of that original source of seigniorage has gradually
dwindled. Now that almost all money takes the form of electronic entries
in computerized bank accounts, it makes sense to extend the traditional
principal of seigniorage to non-cash money.

There are important social, environmental and economic arguments for
this monetary reform, on top of the contribution it will make to public
revenue. Moreover, it will help to remedy a democratic deficit. It will
make it easier for citizens and politicians to understand how money and
banking work, and how they could work better for the common good.

As the Commission on Global Governance recognized five years ago in its
report, Our Global Neighbourhood, the principle that the value of common
resources should be a source of public revenue applies at the world
level as well as the national level. It proposed that global taxes and
charges, needed "to service the needs of the global neighbourhood",
should be based on the use each nation makes of global commons.

These taxes and charges could be:

    * on the use of international resources such as ocean fishing,
sea-bed mining, sea lanes, flight lanes, outer space, and the
electro-magnetic spectrum; and
    * on activities that pollute and damage the global environment, or
that cause hazards across or outside national boundaries, such as
emissions of co2 and cfcs, oil spills, dumping wastes at sea, and other
forms of marine and air pollution.

The Commission also pointed to the urgency of international monetary
reform: "A growing world economy requires constant enlargement of
international liquidity." The principle underlying the reform proposed
in Creating New Money is relevant to this.

Revenue from raising global taxes and putting a global currency into
circulation could then provide a stable source of finance for un
expenditures, including international peace-keeping programmes. But not
only that. Some of the revenue might be distributed to all nations
according to their populations, reflecting the right of every person in
the world to a "global citizen’s income" based on fair shares in the
value of global resources. This approach:

    * would encourage environmentally conserving development worldwide;
    * would generate a much needed source of revenue for the un;
    * would provide substantial financial transfers to "developing"
countries by right and without strings, as payments by the rich
countries for their disproportionate use of world resources;
    * would help to liberate "developing" countries from their present
dependence on aid, foreign loans and institutions like the World Bank
and the International Monetary Fund, which are dominated by the rich
countries;
    * would reduce the risk of repeated Third World debt crises; and
    * would recognize the shared status of all human beings as citizens
of the world.

Growing numbers of people share a vision of a more people-centred and
earth-centred society — less business-centred, state-centred and
employer-centred than the society we have today. One of its features
should be that everyone has the right to share in the value of the
"commons". Another should be that, in exchange for that right, we accept
greater responsibility for ourselves, for our families, neighbourhoods
and society, and for the natural environment — locally, nationally and
globally.

In practical terms this vision calls for a reconstruction of public
finance and the monetary system. And one of the practical things we can
do personally is to press our politicians, government officials and
financial expert to respond to that call.

    This article is extracted from James Robertson’s Alternative Mansion
House speech in June 2000.

    Creating New Money: A Monetary Reform for the Information Age is
available from The New Economics Foundation (Cinnamon House, 6-8 Cole
Street, London SE1 4YH; tel: 020 7407 7447).

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