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SCI LIBRARY

The Land - Money Question, In Brief

Robert Keall



[26 October, 2012]


The depressed wages of labour are currently mis-spent on

  • Ttaxes
  • Land Rent capitalised into land price (infra).
  • Interest on the mortgage

If the Land Rent were paid to the State instead of taxes, wages would earn interest, instead of paying it. The true capitalist (infra).


1. When the Economic Rent is collected annually by Govt, the selling price disappears.


Economic Rent of "Land" has long been capitalised into selling price and is privately monetised through the banking system via mortgages. We already have a land backed currency. This is the cause of underlying inflation (Reserve Bank Journals - att'd) and the rich / poor divide.

Somehow circulating this through (Local) Govt. with multiple currencies changes nothing, and it will never happen.

Current plans to promote "Growth" and balance the Budget will be captured in Land Price, and thus inflation.


2. Spending the Rent collected must be properly restricted to essential administrative functions, e.g. Law and order, justice etc.


3. Additional credit creation to fund a social agenda is inflationary and wrong. If we socialise the Rent, we can then identify and redress other problems. N.B. Money (infra). Quantitative Easing is not the remedy - it perpetuates the malady.


4. Capital required for


  • Debt servicing and repayment, for major intergenerational Govt. assets.
  • Long term commercial investment - aeroplanes, ships.
  • Stock exchange investment (without the rogue factor of natural monopoly ownership).
  • Short term working capital from bank deposits (infra).
  • Personal retirement income. must be met from the savings of labour.

On this basis -

  • Labour becomes the capitalist. Wages and interest move in tandem (Diagram att'd).
  • The higher level of both allows personal responsibility - now and in retirement, not possible with wages depressed by land price, taxes, or from Nanny State handouts funded from taxes on depressed wages. ).
  • Saved money would appreciate in value with improving productivity - buying more for less. This advantage ("Growth") is currently captured in land price - "Economics In One Lesson", para 1. ).
  • These are the perceptions of Henry George - "The Prophet of San Francisco", acclaimed by such as Einstein and embraced by highly qualified Georgists and others around the world. ).

* Affiliate of The International Georgist Union, London, and Prosper Australia Inc., Melbourne 45 Dominion Street, Takapuna, Auckland, NZ, Tel (09) 486-1271, Fax (09) 486-1272, Email: resourcerentals@xtra.co.nz Website : www.resourcerentalsrevenue.org

Money - is not some separate, elusive quantum that has to be controlled, and that somehow has to service countless transactions, from very small to very large. The technical term Money Supply¹ of M1, 2, 3 is a small liquidity sequence, not to be confused with the supply of money².).

Money is essentially a measure of the relative labour content of goods and services permitting the exchange of consumables, perishables, or durables, now, progressively or later. It assesses the relative value of the labour content, whether of brain or brawn, applied by the seller or avoided by the purchaser, for exchange purposes. Even gold has a dollar price, for these reasons.

When the capitalised value of a gratuitous licence which has no labour content, but does have an effective purchasing power and exchange value for the labour of others, is introduced to the labour exchange process, then the measure is thereby expanded but with no corresponding increase in the goods and services. That's inflation. Too much money chasing too few goods; future money but only present production. Over time the goods and services diminish in value whereas the rights appreciate, compounding the effect.

The valuable licences or tradeable rights become part of the indiscriminate exchange of goods, services and equities, all freely interchangeable, quantified in dollar terms, and convertible into cash, as maybe minimally required. Electronic transfers now replace cheques, paper notes and coins. Whilst it may be interesting to quantify M1, 2, 3 and the velocity of circulation, it cannot influence the external rogue factor that drives them.

EARNINGS $ + NON EARNINGS + TOTAL MONEY $
Goods & Services Tradeable Rights M1 to infinity
Cash & Cheques Certificates Cash, cheques & Certificates, all in $, Interchangeable freely

"The Reserve Bank can't directly determine the total amount of money there is in New Zealand. But it does control the banking sector's key source of cash" - (RB on Inflation).

If the Reserve Bank temporarily corners some of the system's current assets, it reduces liquidity and so stifles trade. This inhibits the unearned gains that expand the currency but it does not eliminate them. The trade in power shares, which is demonstrably inflationary, has not been stopped. The significant, gratuitous profits and the share values are a fiscal factor expanding the currency.

It is not the Reserve Bank's province to set wage rates, interest rates, exchange rates, rent or the price of anything. These are economic not fiscal matters. Relegating to the Reserve Bank responsibility for "price stability" is a misleading abdication of the Government's own responsibility to deal with the currency inflation that causes the price inflation. Nor is the Reserve Bank accountable for Government misuse of Reserve Bank credit. As above, the Reserve Bank often, appropriately, explains its statutory limitation.

¹M1 - notes, coins and cheque accounts; M2 - call deposits; M3 - term deposits; as a liquidity sequence. NB: M1 is only 3% of M1, 2, 3 which totalled $280bn in Feb 2007 and could not possibly be the basis for every transaction.

²(i)The NZ Monetary Aggregates (ex RBNZ)

- Money is a medium of exchange, a standard of value, a store of wealth …. Not just notes and coins, but anything used to effect transactions …. denominated in terms of money.

- There is no unique practical definition of money (!)

- The quantity of money will move in proportion to the value of the transactions(!)

- Since money represents generalised purchasing power, it might be linked over time with the nominal value of total spending and output of goods and services in the economy. (Are equities ignored or included with goods and services? - Ed.)

(ii) RBNZ G94/5

  • The CPI and GDP influence M1, not the other way.
  • M1 grows in line with nominal income growth.
  • Short run M1 growth is influenced by equity returns growth.
  • M1 does not lead development in the real or nominal economy. Thus M1 growth implies nothing for future output growth or inflation.
  • The Money Supply is not determined by the central bank.
  • M1 growth is determined by output growth and inflation. In the short run the stock market plays an important role 3.
  • M1 is found to have no empirically relevant influence on either output, growth or inflation.

³The Stock exchange should reflect productivity without being all mixed up with the fortunes of those who own "The Economy". (Ed.)

Inflation - used to be (and often still is) patently due to using Budget Deficits and Reserve Bank credit to finance social welfare, wars and other political purposes. That initial genesis is of course compounded by the unearned factor above.

But with balanced or even surplus Budgets, we have still had rampant inflation.

The inflation that persists is then disguised under a CPI (Consumers' Price Index) that accommodates "land" price increases at the expense of wages/prices. We work harder for less to accommodate higher land prices under a tolerable net CPI. (NZH 16.7.97)

Commodities, goods and services, derive their exchange value from the labour applied or avoided. Their supply varies according to demand. Wages are prices, and prices are wages.

Land is not man-made, has no labour content, has an inelastic supply and has an unearned value, derived from artificial right or privilege - a fragmentation of baronial fiefdoms. Likewise, tradeable ownership rights to other natural resources or natural monopolies give purchasing power but produce nothing. Corporatised power board shares issued free to consumers went from $3 to $13 but produced no more power. "Corporatisation had already released over a billion dollars of shares into the community (NZH 13.9.95)".

Underlying currency inflation is caused by rising land values (infra). We now have a land values based currency.

The Banking System - is essentially a clearing house for settling trade exchanges in monetary terms and for matching capital needs with supply, e.g. Postbank, Trust banks and finance companies. A single national institution could (some say should) fulfil the function, avoid the need for a Reserve Bank and thus isolate the remaining inflationary factor which is outside the banking system. The banking system including the Reserve Bank, can only deal with cards given to it by Government, including the wild card of unearned gains. No bank can sift out the unearned gains element from countless transactions each day. Nor is it their responsibility.

Savings with a bank intended to finance loans to other parties for chattels on hire purchase, working capital, overdrafts, credit cards etc is a legitimate use of the medium of exchange. Monetising a tradeable unearned gain abuses the medium. Financing the purchase of another misuses it. Currently, the several functions confuse it. Defining the basis for the currency is the Government's role. The value of an artificial unearned privilege convertible into cash is not a legitimate component of the currency base, but it is not the role of the banking system to distinguish it.

Bank loans as such, like credit cards or Bills of Exchange have to be repaid, normally from earnings. They are not in themselves a permanent, artificial, unproductive expansion of the currency.

In N.Z. Banks, like finance companies can only lend the deposits made with them¹. The Reserve Bank requires a proportion of these deposits to be lodged with it (currently 10%) as a means of constraining lending. If their lending exceeds that proportion of their deposits (90%) then they must borrow from the Reserve Bank (or other banks) sufficient to validate the excess². The overnight interest rate charged by the Reserve Bank sets the benchmark interest rate (O.C.R). Some Governments have been known to apply 100% reserve ratios to offset the effect of their Budget Deficits as far as maybe. Certain capital reserves are also required.

¹ In other countries this constraint does not apply. As a commercial risk privately owned banks lend 8 or more times their Deposits. This multiplies the inflationary and social risk from failure elements. The Federal Reserve, World Bank and I.M.F are also privately owned by the Banks.

²A fall in land values nullifies this constraint. Hence the Deposits Guarantee Scheme now in place, at a cost to the banks.

The Mechanics (Extract from Submission to the Conference - Sydney July 2011)


Whilst we have to recognise that implementing our reform too radically would cause injustice we also need to be aware of the mechanisms already in place we can exploit to avoid injustice without compromising principle (infra).

We have inherited a sacrosanct assumption that private property in land is as certain as tomorrow's sunrise. But only 400 years ago Galileo confirmed Copernicus' perception that the sun didn't rise, and faced excommunication for his heresy.

It's only 150 years since Lincoln, and 130 since George.

Whilst we have all the problems of popular mindset, ignorance, apathy and greed, we have several advantages to exploit.

In Australia / N.Z. we have had 200 years experience of L.V.T. in various forms - Crown Leases, Land Tax, Land Value Rates, Public Body Leases; an established valuation practice that separately identifies the value of the land from the improvements; professional valuers in contrast with those elected by popular vote. The Northern hemisphere still argues about whether you can or can't do it.

With these mechanisms in place we have the following opportunities to implement the paradigm from the bottom up, now, rather than top down on the never, never.

  1. Rates Rebates - since 1973. Those on low incomes (e.g pensioners on State Superannuation) can apply to the local Council for a Rebate. The current factors of Rates/Income can easily be changed.
  2. Rates Postponement . The asset rich but income poor can apply for Rates to be postponed and brought to account when the property is sold. The principle could be extended beyond the current 5 year write-off dispensation, and be made optional.
  3. Negative Gearing. It has long been possible to set off the loss on property investment against other income. Recently this led to increased borrowing to 100%, 110%, 120% of the valuation (negative gearing) in order to ensure a loss to set off against other income. Higher interest rates designed to curb it actually made it more attractive to the Banks and the borrowers. Blue Chip regarded it as Positive Gearing - a legitimate means of beating the tax man. Ring-fencing the loss against the property was dismissed as contrary to the income tax rationale. It has been refined but persists. In 2003 - 4 this cost the Australian Federal Government $2.6 billion, expected to be $4 billion in 2004-5. ("Progress" p9 Nov / Dec 2005.)

  4. * Affiliate of The International Georgist Union, London, and Prosper Australia Inc., Melbourne 45 Dominion Street, Takapuna, Auckland, NZ, Tel (09) 486-1271, Fax (09) 486-1272, Email: resourcerentals@xtra.co.nz Website : www.resourcerentalsrevenue.org

  5. The Homeowner's Land Value Rates should be tax-deductible like all other commercial operations . An introductory sliding scale of Rates / Income would accommodate people without compromising the principle.
  6. Donations to designated charities qualify for a Tax Refund - without application. The designated charity reports contributions to the Tax Department who remit a refund to the Taxpayer.
  7. Land Value Rates / Land Tax should be promoted as a better alternative to a Capital Gains Tax with it's complexities and delayed impact .
  8. The Treaty of 1840 imposed Crown leasehold initially. In 1878 came a "Land and Income Tax Act" under Sir George Grey. From 1896, with the right to a poll, Land Value Rating spread rapidly.

By 1920 the Land tax accounted for 10% of the Budget.

In 1969 the Public Bodies Leases Act regularised a significant feature of Local and Central Govt.

By 1982 L.V. Rates had been adopted by poll in 90% of municipalities and accounted for 80% of Local Govt. revenue. Without these changes land would have been half as dear again.

In 1931 Napier was flattened with an earthquake at 7.8 that lasted 2 ½ minutes! Rebuilt with the impetus of L.V. Rating it is now an Art Deco city with guided tours for local and international tour parties.

In 1985 we proposed that, on the evidence, L.V. Rating be made mandatory and that the Land Tax be ascribed to Regional Local Govt. That would have entrenched the Land Tax and neatly separated the 2 forms of revenue. That historic initiative was subverted by the New Right Labour cabinet under the influence of the World Bank.

Over the last 170 years N.Z. has been where the old world has yet to go.

The mechanics are in place to implement the change, now, at the grass roots, which is the ultimate objective. A few would lose. Some would break even. The majority would gain!