Economic and Social Justice in Australia

Karl Williams

[Advanced Kit / 2002]

INDEX

• Introduction
• History: the Rise and Fall of Feudalism
• History: the New Slavery
• History: Henry George and the Land Value Tax
• War - Who's the Real Villain!
• Tax Evasion
• Why LVT Cannot Be Passed on to the Tenant
• When the Law is Actually Respected
• Banking and Interest
• Banks and the Money Supply
• Currency Speculation and the Tobin Tax
• Boom & Bust Cycles
• Who Will Own the Land?
• Indigenous Land Rights
• Lies, Damned Lies and ….
• Local and Global Geonomics
• Free Trade or Protection?
• Unemployment - the Pieces of the Puzzle
• Taking It from Here
  

INTRODUCTION

"The neoclassical economists' view of their proper role is rather like that in The Realtor's Oath, which includes a vow "To protect the individual right of real estate ownership." The word "individual" is construed broadly to include corporations, estates, trusts, anonymous offshore funds, schools, government agencies, institutions, partnerships, cooperatives, the Duke of Westminster, the Sultan of Brunei, the Medellin Cartel, Saddam Hussein, congregations, Archbishops, families (including criminal families) and so on, but "individual" sounds more all-American and subsumes them all. This is a potent chant that stirs people to extremes of self-righteousness and siege mentality when challenged." - Professor Mason Gaffney, US Geonomic academic

We have just progressed through the Introductory and Intermediate Kits. We trust you now have a reasonable understanding of the fundamental principles of economics, and are reassured enough to know that the path to prosperity and social justice lies in a few elegant, simple laws. As Einstein said, "If the formula itself is not beautiful, then it cannot be true." In stark contrast, neoclassical economics is often ridden with bamboozling jargon, mathematical formulae, models with absurd assumptions, academic esoterica and totally abstract theories.

Understanding this Advanced Kit will not require an economics or a commerce degree - in fact, whoever has been indoctrinated in one might even find it a hindrance, as I did!

There's still much to discover, but we have already covered the essence of it. The slogan "Pay for what you take, not what you make" is an axiom of sorts, for it admits of exceptions, and we have to hang a few bells and whistles off our general principles. No rigid dogma binds us, so that we can easily cater for those few people who might fall through the cracks of Geonomics. Some of the wisest and most compassionate features of the old social welfare system would still apply.

So again we're going to spiral around Geonomics, checking out some new areas and delving deeper into some old ones. As your understanding broadens, you yourself may well discover a multitude of downline effects of an apparently simple change in taxation. But the end result of a sane economic system and a commitment to real social justice is almost unimaginable. When you are convinced, as we are, that Geonomics is really the only viable solution to our present difficulties, then you may offer to lend a hand. The best way to start is simply spreading the word enthusiastically. Georgists have a terrible reputation for ruining dinner parties!

"LAND, n. A part of the earth's surface, considered as property. The theory that land is property subject to private ownership and control is the foundation of modern society, and is eminently worthy of the superstructure. Carried to its logical conclusion, it means that some have the right to prevent others from living; for the right to own implies the right exclusively to occupy; and in fact laws of trespass are enacted wherever property in land is recognised. It follows that if the whole area of terra firma is owned by A, B and C, there will be no place for D, E, F and G to be born, or, born as trespassers, to exist." - Ambrose Bierce, (1842 - 1914), American satirist, The Devil's Dictionary

HISTORY: THE RISE AND FALL OF FEUDALISM

"To be ignorant of what happened before you were born is to be ever a child, for what is man's lifetime without the memory of past events woven with those of earlier times?" - Cicero (106 - 43 BC), Roman orator, statesman and man of letters

One of the main reasons for the decline and fall of the Roman Empire was economic. It had been eaten from within by that very malaise that curses us today: the appropriation of the land on the part of a powerful, politically empowered elite to the exclusion of the rest. The result was inevitable. Who wants to fight for land he does not own? Certainly not the slaves who were doing the donkey work to support the landowners of the decaying Roman Empire.

When the barbarian tribes began to turn into civilised nations, they realised that the privilege of controlling land had to be counterweighted by extra duties like the costs of administration, defence and the social services (education, health, hostelry etc.).

BALANCED FEUDALISM - GIVING AND TAKING

Hence Feudalism. This social system, which lasted about seven centuries (far longer than either capitalism or socialism) consisted in an exchange of services between king, nobility, the Church and the people. Who did what?

The king was the nominal owner of the land. This provided him with an independent income, which allowed him (occasionally her) to govern. The nobility were the actual occupiers of the various duchies, counties etc. They controlled the land by taking part of the rent as personal/family income and spending the rest in the services of defence, administration and justice. The Church also occupied large tracts of land, taking part of the rent for the upkeep of its monasteries and spending the rest in the social services: education, health, hostelry etc.

The people supported the system by working, mostly agriculturally. For about four weeks of the year the peasants worked either for their lord in exchange for administration and defence costs or for the Church in exchange for social services. 14-15 weeks of work would be enough for the support of a medium to large family (small families were an exception), and 10 weeks more would provide for whatever extras were available in those days, like beer, bacon and the like. Working time amounted to some 200 days/year, with 150 for leisure (from handicrafts to Gothic cathedrals). There was no concept of unemployment or vagrancy.

NOT SO NOBLE!

What broke the equilibrium was the nobility. Conventional history books gloat over the English barons demanding "freedom" from king John by forcing him to append his seal to the famous Magna Charta. What they don't explain is the type of freedom demanded. It was freedom from duty, i.e. from spending the excess rent on administration and defence.

In time, the nobility of other countries followed suit, but administration and defence costs remained, gradually becoming the responsibility of the king. Increasingly it was the people who had to pay for such, by means of increasing taxation.

Things deteriorated, but not too much while the social services remained in the hands of Church bureaucracy. A dramatic slide for the worse occurred when the king, unable to get sufficient income, had to start selling his land to the nobility, the only people who had the money to buy it.

THE GREAT LAND GRAB

The trend continued. Henry VIII of England having run out of land of his own, confiscated Church lands while the nobility began the process of enclosing more and more common land which forced the people either to work in the large estates for bare subsistence or to starve outside them.

Slavery, shown the door during the first millennium, re-entered through the window during the second. There exist in fact two ways of unjustly appropriating the work of others: either considering a human being as private property, or preventing him from accessing land and its natural resources, forcing the landless to work for whatever conditions dictated to them by the exclusive holders of land. Philosophically it is possible to distinguish between the two forms of slavery. For those at the receiving end it makes little difference.

The process of enclosure was completed towards the end of the 18th century. The landless, expelled from the commons where they had sought refuge, had no choice but to pour into the cities, which at the time were experiencing the Industrial Revolution.

Conventional historians are only too ready to blame the Industrial Revolution for the appalling social conditions of the workers, but keep silent about the more plausible interpretation that it was the Industrial Revolution which had actually saved those poor wretches from starvation, however unwittingly.

"None ought to be lords or landlords over another, but the earth is free for every son and daughter of mankind to live free upon." - Gerard Winstanley, (1609? - 1660?) A leader of the 17th century Diggers movement

HISTORY: THE NEW SLAVERY

"The Irish Famine of '46 is example and proof. The corn crops were sufficient to feed the island. But the landlords would have their rents in spite of famine and in defiance of fever. They took the whole harvest and left hunger to those who raised it. Had the people of Ireland been the landlords of Ireland, not a human creature would have died of hunger, nor the failure of the potato been considered a matter of any consequence." - James Fintan Lalor, (1807 - 49), Irish patriot

The accursed social conditions of workers during the Industrial Revolution naturally prompted many inquiries - in those days, the connection between the enclosures and the Dickensian conditions in the cities was much more apparent.

THE ORIGINAL ECONOMISTS

The first great inquirer was the Frenchman Quesnay (1694-1774), "the European Confucius" as they dubbed him, who recommended a tax on land as a modern remedy to re-impose the old social charge on land ownership. Another was Turgot (1727-81). As Minister of Finance of Louis XVI he tried to abolish the irresponsible privileges of the nobility, but they ganged up and destroyed him instead. Even Adam Smith (1723-90) noticed, but as he was in the pay of the Scottish Duke of Buccleuch, he could not bite the "benefactor's" hand.

When Professor Thorold Rogers of Oxford (1823-90) dared expose the real causes of the relentless plunging into poverty of the English people from Henry VIII to Queen Victoria, he lost his chair at the University of Oxford. It would not be the last time that the vested interests tried to muzzle a seeker after truth.

The complete picture cannot be had by perusing a single book. One has to glean a good number of apparently unconnected symptoms before seeing the larger image hidden in a confusing array of smaller ones.

Europe had serfdom. America, a younger land, saw traditional slavery instituted afresh. Why were the African slaves not sent to Europe? - because Europe was already full of such! H.M. Government indeed began enthusiastically to transport its "surplus" population to Australia. The land there was "free" in the sense that the militarily weak Aborigines could be rendered landless with a few musket shots, much as the American Indians would a few decades later.

NO LAND = NO HOPE

At the time when Don Bosco was gathering his stray waifs thrown onto the streets of Turin by the same policy of forced landlessness, the blight struck the Irish potato, sole crop of the landless there. Eight million of them, expelled from their ancestral lands for the benefit of a couple of a hundred absentee landlords, were being rack-rented to the point of either starvation or emigration. Meanwhile, Ireland remained a net food exporter!

The Irish and later the Italians, both militarily weak, crossed the Atlantic. The British, militarily strong, and thrown out of America three generations earlier, found their opportunity in Africa. They enclosed the land and forced the indigenous people to work for them exactly along the same pattern as their English and Scottish landowner forebears had done before. But they had another problem: a surplus industrial production that the impoverished Britons could not buy for lack of purchasing power. So what did they do? They went to "open up" China, Korea and Japan, which reacted with Oriental swiftness and cunning deception, filibuster and well-struck murderous blows.

The Second German Reich was not far behind, for it had the same problem. Forty-odd years later the insane policy would explode into the slaughter known to this day as the Great War.

The American Civil War of 1861-65 dramatically exposed the difference between the two forms of slavery. The economic victors were the militarily defeated Confederates, who found that hired labour was a great deal cheaper than having to feed, clothe, shelter and cure slaves.

"Thus the form of assessment which is the most simple, the most regular, the most profitable to the state, and the least burdensome to the tax-payers, is that which is made proportionate to and laid directly on the source of continually regenerated wealth (land)." - Francois Quesnay, (1694 - 1774), French physician and economist around whom the Physiocrats were formed

HISTORY: HENRY GEORGE AND THE LAND VALUE TAX

"We ought to tax all idle land the way Henry George said - tax it heavily so that its owners have to make it productive." - Henry Ford, (1863 - 1947)

"I believe that Henry George was one of those really great thinkers produced by our country." - Franklin D. Roosevelt, (1882 - 1945)

Beyond knowing that Henry George had all the experience he needed in terms of poverty, odd-jobbing, writing and publishing, the life of this man of vision can be read elsewhere. On finding himself out of work in Philadelphia, he followed the trail of the forty-niners to San Francisco. Two expeditions in search of gold produced nothing but hunger and disappointment.

THE GREAT PARADOX

For a long time an idea was turning over in his head. Why are salaries in new countries always higher than in old ones? Why do progress and poverty not only appear together, but also drift farther and farther apart? Why are public as well as private charity impotent in solving the problem with any permanence? Why do beggars, tramps and prostitutes cluster around millionaires' districts?
In San Francisco he had seen the growth of progress together with poverty. A trip to New York showed him the process in its full maturity. The shocking contrast between the most bare-faced opulence with the most abject squalor turned into an obsession the need to find an answer to the old question.

But he did not find that answer in New York. He found it in San Francisco a few months later. During a horse ride in the hills east of the city he dismounted to let the animal rest. Just to start conversation he asked a teamster what the value of land was in the district. "I don't know," answered the man, "but there is a man over there asking 1000 dollars for an acre." What was happening "over there" for an acre of land to be worth a fortune in the California of 1869?

The transcontinental railway was about to arrive. The land value throughout Oakland was being catapulted to the stars with speculators vying with each other to secure land titles before the arrival of those who would need land to live and work.

"EUREKA!"

In a flash, George understood. Land value increases with the increase in population, and those who needed land had to pay for the privilege of using it. But the land is the primary source of all that human beings need to live. If there is such a thing as a universal right to life, there must also be a universal right to the Global Commons necessary for life. He who owns ends up controlling the destiny of him who works. Words like "republicanism" or "democracy" may be high-sounding, but empty.

The remedy suggests itself. To restore the control of land to those who use it, it is enough to take the rent of it as a social charge with which to defray public expenditure. The rent of land, instead of ending up in private pockets, would pay for defence, administration and the social services. Put it another way, let whoever occupies land pay in proportion to the quantity and quality of value subtracted from the common resources of nature, not for value added on them by his/her own exertion. And let all receive the value of those resources in the form of public services. Nobody would thus be defrauded of the fruits of their labour, and the load of taxation would cease to fall on production.

There was nothing new in that flash of understanding. He had independently arrived at the conclusions of feudalism, of Quesnay and of Turgot, without having ever heard of the three.

HIS WORK

He began studying and writing. In 1879, at 40, he finished Progress and Poverty. The book is still in print, by far outselling all the works of Marx put together and has been translated into the major world languages.

In the 1880s and 1890s Henry George had captivated much of the English-speaking world with his books and hundreds of public speeches. The merit of Henry George is therefore not originality but an uncommon clear argument backed by a polished expression that makes of the book a classic of both economics and literature. Why is its author then not better known? Because he championed the efficiency of Land Value Taxation so well and identified the underlying cause of social injustice so successfully that he had to be stopped.

And he was stopped, by the so-called neo-classical economists bankrolled by vested interests.

"The socialist mistake [is] looking on capital and labour as the two factors of production and as the two parties to the division of the produce. As a matter of fact there are, in our highly-developed industrial system, three parties of production, and always a fourth and generally a fifth related to distribution. In addition to A the employing capitalist and B the employed labourer, there are C the landowner, D the tax collector and generally E the representative of monopolies other than that of land. What A and B can divide between them is not the product of their joint efforts, but the product which C, D and E leaves to them." - Henry George

WAR -- WHO'S THE REAL VILLAIN!

"But when the sky darkens, and the prospect is war Who's given a gun and then pushed to the fore? Aye, and expected to die for the land of our birth We who have never owned one handful of earth." Anon.

Would Geonomics lead to an outbreak of multi-ethnic tea parties all over the Balkans? We repeat, Geonomics is not a panacea. Without it, though, there will never be any real prosperity or social justice. Similarly, Geonomics isn't the panacea for all conflict, but without it there will always be incentives to wage war.

THE TIMELESS CAUSE OF CONFLICT

The issue is territorial conquest. If you examine the causes of war, you won't be able to identify many for which territorial conquest was not an important factor. This is especially the case if you broaden the term territory to include water (one of the things over which scores of future wars will be fought, many say) and minerals (including oil).

Wherever a society exists in which individuals or groups can own the Earth outright and thereby profit enormously, then there's going to be a great temptation to seize a few of the best chunks. Of course, there'll be some ostensible justification for this confiscation, such as:

• Some silly nationalistic "principle", like ethnic pride or vengeance
• Some historical justification, like "we had it first" (selectively choosing how far back in history to go)
• A pre-emptive move of forward self-defense in the face of imminent (or beat-up) threats by a hostile neighbour

One way or another, nearly all war is about territory in the end. As humans are physical beings, somehow stuck in time and three dimensions, this must be ever so. If we are going to claim exclusive and eternal possession of some of the physical environment where our bodies - pretty much locked to our consciousnesses - want to move, then it's no wonder that one may hear big, loud, angry-sounding bumps sometimes.

WHAT MAKES LAND SO SPECIAL

Land is limited, a minimum of it is essential for survival, and its quality varies greatly. This presently gives a big incentive to some individuals/clans/tribes/ethnic groups/nations to grab more than their fair share. And, seeing how generals or demagogues in charge usually ensure that their own nests are pretty well-feathered, the poor old plebs are often led into a war from which they will gain little if anything - as the poem at the head of the page well illustrates.

So how would LVT change all this? Well, it wouldn't change it all but it would, for starters, eliminate or greatly reduce that particular incentive for individual or group gain arising through the possibility of claiming ownership of natural resources, including land.

A CHANGE IN CONSCIOUSNESS?

And here's a completely different tack: while greed, malice and cynicism rule human hearts, no system of government can hope to eliminate war. But, given enough time, perhaps an enabling environment would nurture more the virtuous than the vicious side of humanity and eventually bring about peace on a personal level - a sort of bottom-up approach. For instance, the more people there are who understand the philosophy of social justice (not to mention the potential prosperity) that LVT confers, the less likely they are to believe and follow some ranting populist playing the cheap nationalist card to drag a bewildered population into yet another war.

On that very point, Henry George also believed in the innate goodness of humanity, and seemed to inspire it among those who knew him. George was not naïve of our human flaws, yet was convinced that our system of land monopoly capitalism had degraded many of our higher virtues, and herein lay great hope. As Helen Keller said of George, "Who reads shall find in Henry George's philosophy a rare beauty and power of inspiration, and a splendid faith in the essential nobility of human nature." Contrast this to the cynicism of Hitler, who wrote in Mein Kampf "If you wish the sympathy of broad masses, then you must tell them the crudest and most stupid things."

If Hitler was right, humanity is irredeemable. If George was right, the principles he enunciated and elaborated could encourage humanity to such a level of social development that few would feel the need to respond to rabble-rousing warmongers. But whatever the case, it cannot be denied that LVT would greatly reduce the financial incentive to violently grab natural resources.

GOING GLOBAL

Want to hear a wild dream of mine? The day might dawn when Geonomics extends beyond arbitrary political boundaries to incorporate all peoples. Nations with natural advantages (mineral wealth, small population, benign climate, well-located sea ports etc.) would voluntarily pay more "international LVT" to a Global Resource Agency than others. Revenues raised could fund sustainable development programs and environmental restoration. Where is the justice in, say, a dirt-poor Yemeni being born on the wrong side of the border with oil-rich Saudi Arabia?

"There never was a time when the need was greater than it is today for the application of the philosophy and principles of Henry George to the economic and political conditions which are scourging the world … Permanent peace can only be established when men and nations have realised that natural resources should be a common heritage." - 1st Viscount Phillip Snowden, (1864 - 1937), British Chancellor of the Exchequer

TAX EVASION

Unemployment for all
Not just the rich
- (a protest banner spotted in Melbourne recently)

Wherever land monopolists can gain fabulous wealth without lifting a finger, the ultimate insult to their resource-poor fellow humans is the fact that they, with the assistance of their creative accountants and cunning lawyers, can get away with paying little or no tax.

TAX IS OPTIONAL - FOR THE RICH!

As a general rule, those with the resources to pay, don't pay. Family trusts, dodgy charities, anonymous offshore funds, widespread rorts such as the bottom-of-the-harbour tax schemes, tax havens, the underground cash economy and more exist all over the world because no amount of tax legislation has ever been able to keep up with the widespread means to evade tax. We've had endless tax reforms and promises from governments to make everyone pay their fair share but, if anything, tax evasion is steadily getting worse. The rise of globalisation and its concomitant transfer pricing to companies set up in low-tax or zero-tax countries considerably lessens the ability of sovereign governments to levy taxes from companies and corporations. Governments then look to the softest source from which to extract taxes, through Pay-As-You-Earn schemes and Point-Of-Sale or Service taxes, all of which are to a greater or lesser degree regressive and therefore inequitable.

In the Third World, tax collection is usually an utterly different ball game. There, ordinary people cannot or will not keep financial records for tax purposes, like those demanded of us. Instead, businesses are "assessed" most rudimentarily. A retailer will have his stock roughly valued or a café owner's seats will be counted, and some guesstimate will be made as to the annual income and capacity to pay tax. This method goes back to biblical days, and tax assessors have the same notorious reputation for corruption now as tax assessor-collectors had then. The process is simple: the businessman will grease an assessor's palm and his assessment suddenly becomes much more "reasonable". This is the basic springboard for the Third World's endemic corruption, and it will definitely remain this way until Geonomics is implemented.

THERE'S NO ESCAPE!

The contrast with Geonomics is total. It's not that LVT, as we propose it, cannot largely be evaded - it's that it cannot be evaded at all! Land is unique in that it can't be disguised, shifted offshore, or hidden under a tree, a building or a rug.

There is a variety of tools to ensure that LVT assessments are fair, reasonable and free of corruption such as software-assisted crosschecks and comparisons, as well as laid-down formulae covering various assessment factors. But the really important anti-evasion and anti-corruption measure upon which Geonomists insist is that all assessments should be completely open to scrutiny. Thus you will be able to visit the nearest office (or website) of the Valuer General and scrutinise your neighbours' assessments and how they were calculated. And also Kerry Packer's. Here lies another reason why plutocrats and the mega-wealthy fought so hard to discredit Henry George, finally deciding to instead silence him by bankrolling the introduction of neoclassical economics and the virtual removal of Geonomics from economics curricula.

"I'm proud of paying taxes. The only thing is - I could be just as proud for half the money." - Arthur Godfrey

WHY LVT CANNOT BE PASSED ON TO THE TENANT

"A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground." - Adam Smith, (1720 - 1790)

Adam Smith's statement above is the voice of authority. But we are going to prove what he just states. In this section we shall endeavour:

• To prove that a landlord cannot shift a tax levied on land values on to a tenant
• To deepen your understanding of classical economics and
• To stimulate in you a bit of love for the understanding of real economics, instead of thinking it as dry and dead boring.

With most commodities, the imposition of taxes leads producers/traders to pass on the tax to consumers, eventually resulting in higher prices and lower sales. But land is something quite unique, as we've seen, and doesn't behave like a mere commodity.

THE MENACE OF MONOPOLY

Land effectively behaves as a monopoly good - the rent is not determined by any cost of production, for it is already the highest price that anyone will offer for it. There is no substitute for the valuable land that individuals and businesses need - one can't go out into the desert and haul in prime real estate!

The LVT would not somehow increase the willingness of anyone to pay more for the land than before, nor would it in any way add to the ability of the owner to demand more. To suppose that LVT could be just offloaded on tenants is to suppose that landowners did not already get for their land all that it brought. In other words, it supposes that, whenever they wanted to, landowners could put up prices as they please!

A PARADOX

Here's the paradoxical twist. As far as one can predict, LVT would - in a country like Australia, with so much valuable unused land - tend strongly to lower rents. Owners of unused land who previously were holding out for higher prices would now be driven by LVT to seek purchasers or tenants, thereby having to lower the asking price. And, for land which is being rented, the landowner would have to forfeit part or all of his cut to the government. However the selling price of land, determined by net rents to the landowner, would necessarily be much diminished (with full LVT collection, the selling price would be around zero).

Radical as Geonomics is, here - contrary to appearances - we are not arguing about anything contentious or new. It is generally conceded by knowledgeable economists that the landlord cannot transfer taxes levied upon rent to the tenant. It is accepted that a tax upon anything of which the supply is fixed or monopolised, and of which its cost of production is not therefore a determining element (since it has no effect in checking supply), does not increase prices and falls entirely on the owner.

TAX RENT, NOT AREA

But here's an interesting and important distinction: a tax on land values is not a tax on all land. And a tax on all land - say, so many fixed $ per square metre - would actually fall on the user. For such a tax - falling equally on the poorest, sub-marginal land as well as the best - would become a condition imposed on the use of any land, from which there could be no escape, and thus the owners of rentable land could add the tax to their rent. But we shouldn't let this little diversion confuse things - Geonomists certainly do not support any tax falling equally on all land, for a tax on economic rent (i.e. on land values) would not fall on all land.

History has something revealing to tell us here. When Henry George was inspiring millions of supporters around the world, it was none other than the big landlords who fought him so zealously, for they realised well enough that LVT cannot be shifted on to tenants. If it could, why the fierce opposition and frenzied cries of "confiscation"?

"A tax on rent falls wholly on the landlord. There are no means by which he can shift the burden upon anyone else. It does not affect the value or price of agricultural produce, for this is determined by the cost of production in the most unfavourable circumstances, and in those circumstances, as we have so often demonstrated, no rent is paid. A tax on rent, therefore, has no effect other than its obvious one. It merely takes so much from the landlord and transfers it to the State." - John Stuart Mill, (1806 - 1873) English philosopher and social reformer, and an acknowledged major intellectual figures of the 19th century

WHEN THE LAW IS ACTUALLY RESPECTED

"I haven't committed a crime. What I did was to fail to comply with the law." - David Dinkins, former mayor of New York

This is purely speculative, but still worth a visit. We're going to look at some of our worst social problems and reflect on the extent to which they might arise from our economic and social systems.

Many good, caring parents bring up children who turn out to be a real mess. There must be something wrong, somewhere, with a society where so many people become depressed, cynical, disenchanted, hopeless, alienated etc. as to resort to drugs, vandalism, suicide (the escalating youth suicide figures are deliberately under-reported) or just end up apathetic or anti-social. And it could be argued that rampant, mindless and expensive consumerism is a low-intensity but widespread indicator of underlying discontent.

WHAT'S MISSING?

One can see some pretty obvious causes, but it still doesn't add up. Institutionalised religions (or, at least, its purveyors) have clearly failed to supply an adequate explanation of our current dilemma, let alone offer just solutions, as people continue to turn away from it in droves. Our cynicism of politicians is somewhat justified, as even a few of the best seem to sell out once they get into power. The bombardment of advertising and trash culture, with all its emphasis on glamour and image, must screw up a lot of impressionable kids. I like the graffiti sprayed on a Melbourne wall stating: " Obedient sheep love to shop".

No, it still doesn't add up, but here's a partial explanation why. All the aforementioned problems take place in an economic environment which simply is not and cannot be understood, and for that reason can never be respected. In particular, taxation - which hits us in the hip pocket more than anything else - springs from a mass of legislation completely beyond the capacity of any individual to understand. In addition, there's disrespect for our tax (and governance) system because there's no clear rationale or validation for its principles. Compared to the elegant beauty of Pay for what you take, not what you make, the present tax system is seen as a necessary nuisance at best, but more commonly as an arbitrary means of milking us. Furthermore, the economic and tax systems make cynics and cheats of us all. Cynics - the wage-earning workforce, both blue and white collar - stand in disgust as they witness the rich getting richer as they confiscate the economic rent. Cheats, because everyone else is a cheat when it comes to filling tax returns, so why should I be a mug and be honest?

WHERE INVESTMENT SHOULD GO

Lastly, social alienation is partly a result of an economic system that cannot afford to invest in community-building amenities and infrastructure. We have seen how such spending effectively disappears into the black hole of landowners' pockets instead of being recycled back to the community through LVT, and we have also imagined A Day in the Life which illustrates what affordable community amenities could bring people together. But the whole area of the personal and social benefits conferred by a stronger community network is a vast and debatable subject in itself, and is beyond the basics of Geonomics in these kits.

"The only thing that would pacify the people now is the introduction of the Land Value Taxation system of Henry George. The land is common to all; all have the same right to it." - Leo Tolstoy, (1828 - 1910)

BANKING AND INTEREST

"The seed ye sow, another reaps;
The wealth ye find, another keeps;
The robe ye weave, another wears;
The arms ye forge, another bears."
- Percy Shelley, (1792 - 1822), English poet

It's both fascinating and disappointing to see how excessive rates of interest are today so generally and meekly accepted by the public. Only until a few centuries ago usury, which is the old word for the practice of lending money at exorbitant rates of interest, was one of the long-standing worst sins of Christendom. Islam widely outlaws interest and excessive profit margins of any kind even today.

In many respects, the basis for this prohibition is as valid now as it was then. It is this: a significant proportion of the interest demanded is immoral in that it is unearned and therefore undeserved. Certainly the lender needs to be reimbursed to take account of administrative costs, the effect of inflation, and the element of risk involved, but what has the lender done to deserve a rate of return above and beyond this?

LAND, AGAIN

However varied the factors determining the rate of interest may be, the land issue plays an overriding role. Essentially, the rate of return available from land props up the rate of return available to moneylenders (i.e. the profitability of holding land supports excessive interest rates).

There are two distinct yields available from land. The first, its natural agricultural fertility, is of little importance in the modern world. The second, its locational value, remains as important as ever and is produced by the activities of society, but ends up in private hands under land monopoly capitalism.

The new and extremely important point is that, in the long run, the rate of return available to investors in land is the most lucrative of all, effectively acting as a de facto benchmark as the highest rate of return, allowing for risk. Indeed, during the period 1960 - 2000 in Australia, land values increased on average 5.8% pa, whereas household disposable income only increased 1.96% pa. This gets us back to the very nature of land. The fact that it is limited in supply and is an unavoidable necessity for human existence means that rising populations make land increasingly scarce and valuable, thus bidding up its price. The other powerful, sure boost to land values arises from the fact that the locational value of land is increased by society, particularly through the provision of infrastructure. And history has shown that, wherever an industry has boomed through enterprise and inventiveness, land prices soar in its vicinity. For a recent example of this ageless phenomenon, look at the recent spectacular rises in land prices in Silicon Valley. So, with land being a sure-fire investment winner, why would anyone lend for a rate less than that available from investing in land? The corollary here is that, as we collect LVT and cut out the opportunities to profit from owning land, interest rates must then fall. The banking issue is not simple and deserves its own section which follows, where the privilege of banks to create credit is specifically dealt with.

"If it's not hurting, it's not working" (defending high interest rates when chancellor) - John Major, (1943- ), former British prime minister

BANKS AND THE MONEY SUPPLY

"So long as a few people have the privilege of inventing money, no one in the country except those few people can really possess private property at all. The rest of us in our fancied property are but tenants-at-will of the bankers in the sense that the bankers can at any time that they wish force us to surrender it. It is idle to say that in practice this does not happen. In practice it happens every day. Two hundred years ago Berkeley prophesied that it would happen. One hundred years ago Cobbett showed that it was happening. Today we can see it happening around us." - Christopher Hollis in The Two Nations

There is another great and rarely-seen source of privilege milking us - the privilege of private banks "creating" money out of credit. Essentially, through the so-called multiplier effect, banks can lend out far more money than they have as deposits, all the while charging interest as if the basis for their lending was based on something as real as the banknotes in your wallet. Furthermore, banks have claimed a special status and importance such that, when their irresponsible and risky practice of lending money they don't possess gets them in trouble, governments (read: ordinary mugs like you and I!) often have to come to the rescue and bail them out.

FOR PEOPLE, NOT PRIVILEGE!

The "privilege of inventing money", like the privilege to own land, needs to become a source of wealth for society instead of being, as it is now, a source of power for a few at the expense of everyone else. The fraud consists:

• In inventing money disguised as loans, and therefore burdened with a debt that has no reason to be
• In inventing money not at the time and for the purpose needed, but at the whim of banks and their clients, i.e. completely divorced from the real economy
  

The story of how the banking system acquired the privilege of defrauding the public can be read elsewhere. Here it is important to note that high interest rates are indissolubly linked to the land monopoly. When land, instead of being widely distributed, is grabbed by a powerful minority, investing in land becomes the most profitable type of investment, with returns guaranteed with increasing population and public infrastructure growing around it.

With such high returns to land, no one therefore would deposit money in a bank at an interest lower than what land can offer. But banks have to make money, so they have to lend at an interest higher than that at which they borrow. Result: two economies come into being: one reserved to banks and money manipulators earning returns while creating no wealth, and the other, the real economy of production which is either starved of necessary liquidity or forced to pay usurious interest.

A COMMON RESOURCE

The solution is to consider money as what it is, i.e. an artificial common resource. As such, it should be issued by the public monetary authority debt-free, when the natural growth of the economy dictates. How can we determine if the real wealth of an economy has grown sufficiently in order for the government to issue more money? By the value of land, again! Instead of basing our money supply on reserves of gold and the whims of bankers, money should be based on the real wealth of our nation, and nothing reflects our real wealth better than the value of our land and natural resources. Build infrastructure and our land values increase. Clean up the environment, reduce crime, and generally make our nation a better place to live and our land values increase. But do something dumb like get involved in a war and our land values decrease. Land and natural resources should be the true indicator of our real underlying wealth instead of paper profits, funny money and ingots of gold. Some geonomists have been increasing proposing such a radical monetary reform which would abolish the outrageous privileges that banks possess.

Furthermore, governments should issue money as public revenue, to be spent on capital development works like roads, dams, bridges and everything that increases the production of economic and environmental wealth and health. Such an increase in public revenue from a common resource would eliminate once and for all the anomaly of the present system, where private power lords it over public resources destroying the environment in the process, and public power plunders the private resources of capital and labour, impoverishing both.

"Modern privilege: the power of being the first to know insider information, the power of monopoly, the power to disregard foreign borders, the power to sway who gets loans, reloans and who doesn't, the power to obtain preferential bailouts and payoffs at taxpayer expense, the power to fund foreign interests for special interest gained at local taxpayers' expense, the power to fund foreign depots and tyrannical social engineering, the power to gain preferential access to foreign and domestic natural resources." - (can't remember where I got this!)

Introductory Kit * Intermediate Kit