In responding to the financial crisis of 2008 and the failings of our so-called capitalist system the good folk over at Positive Money have done excellent work highlighting how banks have the ability “to create money out of thin air as debt”, giving those institutions an economic privilege i.e. an advantage over others down stream that don’t have that ability. There is a lot of truth in what they say however to claim that reforming the money system alone will solve the problems of inequality and poverty goes too far. Economic analysis exclusively fixated on money has something akin to a cargo cult – that is to say an attempt to recreate successful outcomes by replicating circumstances associated with those outcomes, although those circumstances are either unrelated to the causes of outcomes or insufficient to produce them by themselves.
When trying to explain the economic thesis of Henry George to some people this fixation with money tends to get in the way. Therefore to understand Georgism it helps to switch off the “money button” in the brain and adopt the assumption (temporarily at least) that money is a benign factor in the economy which simply facilitates the exchange of goods, services, wages, capital and access to land . It makes all of these things fungible so that the market – the invisible hand of supply and demand – can do its work.
By temporarily abandoning monetary explanations one can then try then to understand how wealth (goods and services) produced in our economy ends up being unequally distributed. Why is it that some can compel others to work for them on their terms and appropriate a big chunk of the fruits of their labour? What gives some the whip hand to repress others? The Georgist answer to these questions is that private ownership of the resources of the Earth (LAND in its broadest economic sense) enables owners to claim larger and larger shares of increasing economic productivity. This private ownership is a monopoly privilege. It allows those who own the most valuable land to extract and pocket huge amounts of rent. In short, no economic production can take place without access to the natural opportunities of the Earth but those who must live from labour alone are forced to pay a toll charge for this access.
The film RealEstate4Ransom opens with the quote “if you had all the money in the world and I had all the land, what would I charge you for your first night’s rent?” The point being that when it boils down to it ownership of land will trump ownership of money every time. Land asset bubbles are commonly identified as a symptom of financial excess, but could it be that they are actually the cause? Ultimately rent is the fuel supply the financial system runs on.
In the end reform of our current flawed economy and the building of a fair and crony-free system is likely to require both monetary measures on the one hand and measures that facilitate the sharing of natural opportunities on the other. On the third hand lets throw a universal citizens income into the mix too. Give and take among heterodox economists is needed to move this agenda forward. From time to time this requires the suspension of ones long held assumptions. We need to start with an open mind in order to be receptive of new ideas.