Henry George and MMT – Part 1

I get several E-mails (regularly) from so-called Georgists who want to know how the Single Tax proposal of Henry George, outlined in his 1879 book Progress and Poverty, fits in with Modern Monetary Theory (MMT). I have resisted writing about this topic, in part, because the adherents of this view are vehement, like the gold bugs, and by not considering their proposals in any detail, I can avoid receiving a raft of insulting E-mails. But, more seriously, I see limited application. In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level. But there is some scope for considering their proposal once one abandons the link between the tax revenue (which they call rent) and government spending capacity. The question that arises, once we free ourselves from that neo-liberal link, is whether a land tax has a place in a government policy portfolio with seeks to advance full employment, price stability and equity. The answer to that question is perhaps. I am writing about this today and tomorrow (with an earlier related post – Tracing the origins of the fetish against deficits in Australia) as part of my research into the life of Clyde Cameron, given I am presenting the fourth Clyde Cameron Memorial lecture tomorrow night in Newcastle. I hope this three-part blog suite is of interest. In some parts, the text is incomplete.

The evolution of the Single Tax idea

Henry George was operating in the Classical economics tradition started by Adam Smith and then extended by David Ricardo and John Stuart Mill.

In discussing the returns to labour from work, Adam Smith wrote in – An Inquiry into the Nature and Causes of the Wealth of Nations (Book I, Chapter 6, Of the Component Parts of the Price of Commodities):

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them, and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities, makes a third component part.

[Reference: Smith, A. (1776) An Inquiry into the Nature and Causes of the Wealth of Nations, reprinted as the Edwin Cannan edition in 1904 by Methuen & Co., London].

Hudson noted that George, like his predecessors argued that:

… land and its rent should form the national tax base, on the grounds … It followed that taxes could fall on this income without increasing costs to the rest of the economy. The government would collect rent in lieu of taxes that otherwise would fall on productive labor and industry.

The concept of – economic rent – is peculiar to economic theory and is defined as:

… any payment to a factor of production in excess of the cost needed to bring that factor into production.

This brings into play the concept of opportunity cost, which is the return that some productive input can get in the next best alternative use. So the cost is what you forego from deploying the resource in its current use.

The case of the movie star or musical star is often used as an example. A musician might be happy to supply his/her talents for x dollars per performance given the intrinsic rewards from the job. Should that performer become very popular, the demand for their services would drive their fee up well beyond the return that they are happy to play at. The difference between the two fees would be the economic rent.

It is an excess over the fee that is required to elicit the supply of the service.

The Classical economists (and Henry George) considered land to be an ‘inelastic factor of production’, which means that its supply is invariant to the price – it is ‘fixed’.

John Stuart Mill wrote in his 1848 – Principles of Political Economy – that:

The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?

[Reference: Mill, J.S. (1848) Principles of Political Economy with some of their Applications to Social Philosophy, D. Appleton and Company, New York edition 1885. The quote is from Book V, Chapter II: On the General Principles of Taxation, page 630].

The idea was that the owners of land did nothing to create the land but could still collect rental income with no further effort.

Mill considered that by estimating the amount of extra income that was accruing to land owners as a result of rising land values due to population growth (excluding any “which might be the result of capital expended or industry exerted by the proprietor” (page 631), a tax could be levied on land values such that “no injustice would be done to the proprietors” (page 631).

The same logic motivated Henry George’s ‘single tax on land’ proposal, which he outlined in detail in his 1879 book – Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy.

Henry George, thought poverty persisted amidst growing wealth because (Book V, Chapter 2, Paragraph 1):

… in spite of the increase of productive power, wages constantly tend to a minimum which will give but a bare living … rent tends to even greater increase, thus producing a constant tendency to the forcing down of wages.

Like Mill, George waxed lyrical about the advantages that land ownership bestowed (Book V, Chapter 2, Paragraphs 28 and 29):

… Go, get yourself a piece of ground, and hold possession … you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon, or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich! In the new city you may have a luxurious mansion; but among its public buildings will be an almshouse.

George considered there to be a “fundamental relationship between land and labor” (Book VIII, Chapter 4, Paragraph 7) given that labour had to step on land to perform productive work and earn wages. He juxtaposed the wealth that was made from land ownership as population growth increased its relative value with the poverty that the working class experienced through stagnant wages growth and unemployment.

Interestingly, George was not enamoured by the Socialists of his day, who as Hudson (2008: 5) notes, were in fact the “most vocal reformers” (on land and other issues) and “his warmest supporters” (p.6) in his struggle to introduce a Single Tax.

[Reference: Hudson, M. (2008) ‘Henry George’s Political Critics’, American Journal of Economics and Sociology, 67(1), 1-45].

Hudson says that (2008: 5):

George refused to join forces with reformers whose agendas included policies besides land taxation. He opposed socialist owner- ship of capital and even refrained from advocating industrial and financial reforms. George’s intolerance in rejecting these reforms helped push his single tax advocacy to the outer periphery of the political spectrum.

His obsession with the Single Tax issue was clearly designed to disassociate himself from those who would issue “denunciations of capital” (p.6).

The reason for his deliberate refusal to join broader reform initiatives lay in (Hudson, 2008: 7):

2. his singular focus on ground rent to the exclusion of other forms of exploitation;

3. his almost unconditional support of capital, even against labor;

4. his economic individualism rejecting a regulatory or planning role for government;

5. his opposition to public ownership of resources and enterprises;

10. the narrowness of his theorizing beyond the land question;

11. the alliance of his followers with the right wing of the political spectrum …

Hudson says that these “personal views” (p.8) were not “intrinsic tot he Single Tax” but “effectively ended the dia- logue between his followers and other reformers of his day” (p.8).

So it is strange that a politician and trade unionist such as Clyde Cameron, would become a loyal Georgist. The only viable link would be the assertion by George that (Book III, Chapter 8, Paragraph 12):

… the value of land depending wholly upon the power which its ownership gives of appropriating wealth created by labor, the increase of land values is always at the expense of the value of labor. And, hence, that the increase of productive power does not increase wages, is because it does increase the value of land. Rent swallows up the whole gain and pauperism accompanies progress.

And later, George wrote (Book V, Chapter 2, Paragraph 3):

But labor cannot reap the benefits which advancing civilization thus brings, because they are intercepted. Land being necessary to labor, and being reduced to private ownership, every increase in the productive power of labor but increases rent-the price that labor must pay for the opportunity to utilize its powers; and thus all the advantages gained by the march of progress go to the owners of land, and wages do not increase.

Cameron himself placed the Single Tax within a policy framework that emphasised increased equity for workers in relation to the capitalist class.

Cameron (1989: 10) wrote:

Real wages could thus be made to rise by something like 30 per cent with one sensible stroke of the taxatoin pen.

He also asserted that ‘farmers and small businessmen would share the bonanza” whereas the capitalists and other owners of central business district property “would pay a lot more than they now pay into the Treasury” (p.10) because of their land holdings.

So there is some selectivity in the leftist Cameron becoming a disciple of the right-leaning and pro-Capitalist Henry George.

As an historical fact, George was incorrect. Real wages have grown over the last century as productivity has grown. The changing relationship between real wages growth and productivity growth, indeed, is an important characteristic in differentiating the ‘Full Employment’ years (1945-1975) with the ‘Full Employability’ period that defines the neo-liberal era, which began with the advent of Monetarism.

Prior to the 1980s (about), real wages more or less grew in proportion with productivity growth, which meant that the capitalist product market could avoid any realisation crises. Workers’ consumption capacity was growing in line with the growth in what each worker, on average, was outputting per hour and so balance was maintained.

The neo-liberal period has been characterised by deregulation of labour markets, legislative attacks on trade unions and persistently high unemployment and underemployment, which eroded the capacity of the workers to gain real wages growth in line with their increased productivity.

The upshot was the large redistributions of national income (factor shares) in many advanced economies away from wages towards profits.

The only way that household consumption expenditure could maintain pace with the growth in output per hour worked (productivity) was for workers to increase their indebtedness.

The deregulation of the financial markets and relaxed (non-existent) oversight of the operations of the banks and other financial institutions lead to the growth in financial engineering in the 1980s and 1990s, which allowed the credit binge to take off. Workers could continue to enjoy spending growth but only because they were simultaneously taking on more debt.

The conduct of governments exacerbated this squeeze. Government surpluses equal non-government deficits. The neo-liberal era was also marked by the shift in fiscal policy bias towards austerity with the eulogisation of fiscal surpluses and the accompanying demonisation of fiscal deficits.

The pressures on household disposable income arising from the government net spending retreat exacerbated the restraints that were being placed on their ability to gain appropriate real wage increases.

These dynamics had little to do with movements in land values although the credit binge fuelled land price bubbles, which, ultimately, became unsustainable and the GFC followed directly.

Henry George and Class

Several people sent Karl Marx copies of Progress and Poverty (Friedrich Sorge, John Swinton and Willard Brown) (Marx, 1975) upon its publication in 1879. Marx was unimpressed.

He wrote to Sorge that:

Theoretically the man [Henry George] is utterly backward! He understands nothing about the nature of surplus value … His fundamental dogma is that everything would be all right if ground rent were paid to the state … This is a frank expression of the hatred which the industrial capitalist dedicates to the landed proprietor, who seems to him a useless and superfluous element in the general total of bourgeois production.

He pointed out to Sorge that George’s causality was absent in the US where “land was accessible to the great mass … [but still the] … capitalist economy and the corresponding enslavement of the working class have developed more rapidly and shamelessly than in any other country!”

[Reference: Marx, K. and Engels, F. (1975) Selected Correspondence, Progress Publishers, Moscow – see Letter to Friedrich Adolph Sorge, June 20, 1881[.

Hudson (2008: 14) argues that George promoted the interests of the capitalist class against labor, in that there was nothing to stop “the capitalist class … from intensifying their monopoly of Capital and Raw Material … [once the rent class] … is abolished only to swell the classes of Interest and Profits”.

Henry George’s Fiscal Policy Paradigm

Henry George was clearly operating in a paradigm where he considered governments had to cover public spending with taxation. George himself says very little about fiscal policy other than to compare the claimed benefits of his Single Tax proposal with the plethora of other taxes that are imposed.

He is also tacit about the level of government he is talking about.

The only clear understanding is that he believed that the Single Tax would provide essential revenue to government to allow it to function without the inefficiencies and inequities that he said we built into the other forms of taxation that he said government relied upon.

Cameron (1989: 9) was also clearly thinking in this fiscal mould. By way of supporting the Single Tax concept he wrote:

But why does a Government elected by the little people of our society persist in compelling their loyal and trusting supporters to pay such a disproportionate share of their earnings towards the cost of Government when there is a better and fairer way of meeting that cost?

[Reference: Cameron, C. (1989) ‘Revenue that is not a tax’, Presented at the official opening of the Western Australian Headquarters of the Georgist Education Association, Perth, March 31, 1989].

He was a Minister at the time the Whitlam government shifted to the right. In this blog – Tracing the origins of the fetish against deficits in Australia – I trace the crucial period in 1974 and 1975, when the introduction of neo-liberal thinking about fiscal policy started to dominate in Australian policy making.

While Cameron resisted the fetish against deficits, it was clear that his own solutions were similarly based on macroeconomic myths about the capacities of a currency-issuing government.

His promotion of the Single Tax was motivated by his perception that taxes (or rents) fund government spending and reduce the need for debt to be issued to fund deficits.

Further, as time passed, George became tied up with the “libertarian anti-government ideology” (Hudson, 2008: 31). He was opposed to public regulation saying that (Book VI, Chapter 1, Paragraph 39):

These are the substitution of governmental direction for the play of individual action, and the attempt to secure by restriction what can better be secured by freedom.

It is thus likely that he would now support the fiscal deficit antagonism that is rife today.

Gaffney (2010: 42) writes:

Georgist tax policy creates jobs without inflation, and without deficits. “Fiscal stimulus”, in the shallow modern usage, is a euphemism for running deficits, often with funny money. George’s proposed land tax might be called, rather, “true fiscal stimulus”. It stimulates demand for labor by prooting employment; it precludes inflation as the labor produces goods to match the new demand. it precludes deficits because it raises revenue. That is its peculiar reconciliatory genius: it stimulates private work and investment in the very process of raising revenue … George’s fiscal policy takes two problems and composes them into one solution.

It is clear that there is little understanding here of the concept of functional finance as developed by Abba Lerner and the sectoral balances insights that are central to the exposition of Modern Monetary Theory (MMT).

Two points arise in this context:

First, MMT, following the ideas developed by Lerner, reject the idea that tax revenue is necessary to fund government spending.

Please read my blogs – Taxpayers do not fund anything and Functional finance and modern monetary theory – for more discussion on this point.

Lerner emphasised that the conduct and evaluation of economic policy should be intrinsically linked to the aim of advancing social purpose. Economic policy cannot be assessed without regard to the functions it serves.

If a sovereign government is never revenue constrained because it is the monopoly issuer of the currency then what is the role of taxation?

Taxation is a way that government imposes limits on the non-government sector. A fundamental principle of MMT is that the imposition of taxes allows the government to manage the state of aggregate demand.

So if nominal demand is outpacing the capacity of the economy to respond in real output terms then tax rises withdraw non-government purchasing power from the expenditure system and reduce the multiplier.

To further understand the role of taxation in a modern monetary economy, please read the following introductory suite of blogs – Deficit spending 101 – Part 1Deficit spending 101 – Part 2Deficit spending 101 – Part 3.

This is tied in with what Lerner talked in his 1941 article – The Economic Steering Wheel: the Story of the People’s New Clothes (Lerner, 1941), which was later reproduced with minor editorial changes as Chapter 1 in his 1951 book – The Economics of Employment (Lerner, 1951).

Lerner introduced the famous ‘steering wheel’ metaphor. The notion is that we should see the economy as a vehicle we can control to achieve our collective well-being. This is in contrast to the neo-liberal concept of the economy as a self-regulating mechanism, which demands us to act as sacrificial lambs to maintain its ‘health’.

In the same way, the ‘steering wheel’ metaphor is used by Lerner to juxtapose the laissez-faire approach where the car zig-zags across the road, often out of control and producing multiple wrecks, with the alternative, where judicious use of the steering wheel can ensure the car travels safely and smoothly along the road. Lerner considered fiscal and monetary policy to be ways in which government can ‘steer’ the economy to avoid the crises that the free market approach creates (for example, the Great Depression then, and the GFC now).

In relating the metaphor to the economy, Lerner (1951: 4-5) noted that in the main, people accept the need to use the steering wheel for orderly driving:

But are they as reasonable about other things as they are about the desirability of steering their automobiles? … Do they not allow their economic automobiles to bounce from depression to inflation in wide and uncontrolled arcs? Through their failure to steer away from unemployment and idle factories are they not just as guilty of public injury and insecurity as the mad motorists …

Abba Lerner distinguished between what he called Functional Finance and Sound finance, the latter being the orthodoxy he confronted. ‘Sound finance’, which also dominates the public debate in the current period is usually expressed in terms of some defined fiscal and monetary policy rules – for example, governments should aim for a fiscal balance or the central bank should only allow the money supply to increase in line with the rate of real output growth.

These rules, which are rarely challenged, usually disguise an underlying conservative morality about the role of government (for example, deficits are characterised as ‘living beyond the means’ etc).

By way of departure, Lerner considered a government should always use its policy capacity to achieve full employment and price stability and thought that fiscal or monetary policy rules based on conservative morality were not likely to help in that regard. In contrast to ‘Sound finance’, Lerner said that (1943: 39-40):

The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound … The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance.

The first responsibility of the government (since nobody else can undertake the responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce. If total spending is allowed to go above this there will be inflation, and if it is allowed to go below this there will be unemployment. The government can increase total spending by spending more itself or by reducing taxes so that taxpayers have more money left to spend. The government can increase total spending by spending more itself or by reducing taxes so that the taxpayers have more money left to spend. It can reduce total spending by spending less itself or by raising taxes so that taxpayers have less money left to spend. By these means total spending can be kept at the required level, where it will be enough to buy the goods that can be produced by all who want to work, and yet not enough to bring inflation by demanding (at current prices) more than can be produced.

This statement of purpose – Lerner’s ‘first law of Functional Finance’ – recognises the basic rule of macroeconomics – that spending equals income and output, which drives the demand for labour.

Unemployment results from insufficient spending – it is a macroeconomic problem. The neo-liberal claims that unemployment arises because, for various reasons, individuals do not seek work hard enough, totally misses the point. An individual cannot search for jobs that are not there!

In other words, the government responsibility should be to adjust its spending and taxation to ensure that all production is purchased and that this level of production generates jobs for all, such that the society cannot produce any more goods and services with its current available inputs. What are the financial implications of this?

Lerner noted that if in fulfilling its responsibilities, the government records a fiscal deficit, then it “would have to provide the difference by borrowing or printing money. In neither case should the government feel that there is anything especially good or bad about this result” (p. 40).

The goal is to “concentrate on keeping the total rate of spending neither too small nor too great, in this way preventing both unemployment and inflation” (p. 40). Importantly, assessments of ‘good’ or ‘bad’ are defined purely in terms of whether the government is achieving its goals.

Obviously, moral considerations enter at the stage of setting goals. It is clearly a values-based position to aim for a state where everyone can find work who desires to do so. Once agreed that this will be the societal goal, then we should be indifferent, if in different circumstances (for example, the strength of private sector spending), a deficit of 1 per cent of GDP or a deficit of 5 per cent of GDP is required to meet that goal.

Thinking in this way flushes out where the ideology lies. The neo-liberals obscure their disregard for mass unemployment by claiming that the 5 per cent deficit is dangerous and unsustainable. If the public truly understood that the 5 per cent deficit is as sustainable as the 1 per cent deficit, then the neo-liberals would be forced to debate their preference for mass unemployment.

Clearly, the public would not generally accept that ideological preference and that is why the neo-liberals have to obfuscate their true motivations and hide behind the financial myths concerning the sustainability of government deficits.

These insights run counter to the writings of Henry George and by implication the support Clyde Cameron gave to Georgist ideas.

The message from Functional Finance is that governments should act to advance welfare and, at a minimum, that requires it achieve and sustain full employment; that it has an array of policy tools available to pursue that goal (spending, taxation, debt-issuance, money creation); and that the mix of tools used should be appraised in terms of how effective they are in advancing the mission of the government.

No tool is taboo. The use of each depends on what the government is trying to achieve on our behalf and the circumstances in which it finds itself at any point in time.

Economic policy making is about means to ends – a functional endeavour. The goals need to be specified and the tools necessary to achieve those goals utilised. Economic policy making or practice is not a sacred, religious activity where abstract concepts of virtue and sacrifice rule behaviour and choice.

Lerner said that “taxing is never never to be undertaken merely because the government needs to make money payments” (p. 40).

In Lerner’s view, the effects of taxation are twofold: “the taxpayer has less money left to spend and the government has more money” (p. 40).

While true, he then observes that the “second effect can be brought about so much more easily by printing the money” (p. 40), which means we only should think of taxation inasmuch as it reduces the capacity of the private sector to spend and should “be imposed only when it is desirable that the taxpayers shall have less money to spend” (p. 40).

In this context, one has to ask whether the Single Tax is the best way to achieve the advance of public purpose?

The second observation relates to the implication that George’s Single Tax would eliminate the need for fiscal deficits. It is clear from the writings of Clyde Cameron that he didn’t understand in any coherent way the relationship between the government and the non-government sector mediated through spending and national income changes.

Why would a Single Tax eliminate the desire to save overall by the private domestic sector? Why would it eliminate the incidence of external sector deficits?

Indeed, if real wages and profits were higher under a Single Tax, as alleged, then why wouldn’t imports rise and the desire to save increase?

The national accounts show that if the non-government sector desires to spend less than its income overall then the government sector has to run a deficit or else national income will decline and unemployment will rise.

There is nothing in the writings of George to demonstrate he understood this. The Single Tax proposal is a one-stop solution to his belief that governments need to fund their spending.

Further, both George and Cameron were writing before the modern rise of financial capital. Indeed, George considered physical and financial capital to be indistinguishable (Hudson, 2008) both earning interest (profits). Hudson (2008: 20) points out that at the time “finance was taking on an independent life of its own …. Wall Street was busy capitalizing ground rent and monopoly rent into interest charges and “watered costs” as it used real estate, the railroads, agriculture and financial trusts as vehicles to issue bonds and stocks.”

The question then is why didn’t George consider the ‘debt’ problem arising from the rise of finance capital to be worthy of focus alongside the unearned income from land ownership? At the time he was certainly criticised for avoiding this issue.

The same could be said of Cameron who promoted the Single Tax. The greatest source of income inequality now comes from activities of the unproductive financial capital.

It is also a major source of macroeconomic instability, which so far has not been addressed fully by policy makers, such is the power of the lobby promoting the interests of the bankers and finance capital.

How would have Cameron dealt with the bankers?

Causes of mass unemployment

Following on the previous section, it is clear that George (and later Cameron) didn’t really understand how mass unemployment arose.

Henry George became very influential in a relatively short period of time in the late 1880s and early 1890s. At the time, unemployment in both the US and Britain was skyrocketing (Boyer and Hatton, 2002). George had entered the political race for Mayor of New York 1886 and after losing he went to Britain in 1889 to advice the Liberal Party (Barker, 1955).

[Reference: Boyer, G.R. and Hatton, T.J. (2002) ‘New Estimates of British Unemployment, 1870-1913’, Cornell University ILR School Collection, 9-2002].

[Reference: Barker, C.A. (1955) Henry George, NewYork, Oxford University Press].

His explanation for unemployment and poverty was a single cause divorced from the workers’ own characteristics, which put him at odds with the perceived wisdom among economists of the day. George considered the problem was the inappropriate use of land driven by unfair ownership status.

He claimed that unlike other taxes, which “check production”, the levying of a Single Tax on land, would increase production, “by destroying speculative rent” (Book VIII, Chapter 3, Paragraph 10).

Gaffney (2010: 34) wrote:

The economic gurus of the day, even as today, were in a scolding mode, blaming unemployment on faulty character traits and genes and demanding austerity. They were not intellectually armed to refute him or befuddle his listeners.

[Reference: Gaffney, M. (2010) ‘Neo-classical Economics as a Stratagem against Henry George’, in Gaffney, M. and Harrison, F. (eds.) The Corruption of Economics, London, Shepheard-Walwyn Publishing Co., 29-164].

How would the Single Tax solve mass unemployment? The Single Tax would shift the tax burden from workers and capitalists onto those with secure land tenure and the revenue gained would support government spending on public infrastructure.

It followed that “no one could afford to hold land that he was not using, and, consequently, land not in use would be thrown open to those who would use it” (George, Book VIII, Chapter 3, Paragraph 10).

He said that to pay the taxes, the land owners would have to make their holdings productive by hiring workers (or leasing to entrepreneurs), which would drive up wages and increase consumption.

Capitalists, now freed from the burden of taxation, would be more inclined to supply the necessary new productive infrastructure, which would spur productivity growth.

For his part, towards the end of his Ministerial career in the Whitlam government, Clyde Cameron saw a different cause of unemployment. He railed against trade union leaders who he believed were demanding excessive real wages and undermining employment growth.

In that sense, his understanding was squarely orthodox (and non-Georgian) where is real wages were above the market-clearing productivity level, firms would lay off workers.

This understanding is inconsistent with MMT, which, following Marx, Kalecki, Keynes and others, constructs wages as both a cost (supply-side factor) and an important component of income (demand-side factor). How the two scissor blades (supply and demand) interact determines the impact of wage rises on total spending and hence employment.

Firms do not employ workers because they become cheaper if at the same time the firms believe they will be unable to sell the out put that would be derived from the extra employment.

Henry George and Modern Monetary Theory (MMT)

One of the challenges of the modern time, especially in many advanced nations is the problem of housing affordability. In Australia, the housing problem is acute.

I am going on here to write about how a land tax might be compatible with MMT in controlling sectoral imbalances in spending without compromising overall aggregate spending and employment. This is in the context of speculative booms in real estate made possible through low interest rates and investment-property biased tax systems (as in Australia).


I will complete this three-part series tomorrow.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

This Post Has 38 Comments

  1. Bill –

    I am delighted that you’ve finally got around to addressing this issue. However the idea of substantially financing government spending by land value taxation was AIUI first proposed by David Ricardo, so it is he, not Henry George, who deserves the credit for it IMO.

    You seem to be far too eager to reject the idea that tax revenue is necessary to fund government spending. You know that whether or not it’s true depends on the definitioun of “fund”. ISTM the main effect of the narrow definition you favour is to deter people from considering MMT, so I think a broader definiton would be better.

    I’ll wait till part 3 before commenting more on its usefulness.

  2. The Irish anti state serves a purpose in this regard .
    Anything it introduces does not pass the smell test.

    Using georgist language the Irish economy blog (a cipher for the forces of usury ) talked a wonderfully progressive game on the benefits of introducing yet another tax……

    Douglas was virulently against land tax because he fully understood the predatory nature of the larger farm we live in.

    The Anti-Social Character of the Reigning Financial Policy:

    ” Finance has the power to impose a policy on the public, even if that policy is demonstrably anti-public in character.[3]

    [T]he banks are so-called private institutions which administer this collective credit for their own ends, and those ends are by no means similar to the ends of the community of individuals from whom the credit takes its rise.[4]

    [W]e have to realise that there exists, and is being exercised for anti-social purposes, a monopoly of the ticket supply….[5]

    The modern State is an unlimited liability corporation, of which the citizens are the workers and guarantors, and the financial system the beneficiary.[6]”
    Oliver Heydorn.

    [T]he essential power which the banks have acquired is the power of the monetization and demonetization of real wealth. That is to say, the power of creating acceptable and accepted orders or demands upon the producing system and of destroying them on recall; and the essence of their fraud upon civilization is not in the magnificent technique of the system which they employ [i.e., creating money out of nothing – OH], or even in the charges which they make for the use of this money which they create, even though these charges, i.e., their interest rates, may be considered in many cases exorbitant. The essence of the fraud is the claim that the money that they create is their own money, and the fraud differs in no respect in quality but only in its far greater magnitude, from the fraud of counterfeiting. At the instigation of the banking system, barbarously severe penalties are imposed upon the counterfeiter of a ten-shilling note, but a peerage is conferred upon the counterfeiter by banking methods of sums running into hundreds of millions. [10]

    The banking system … is the core of the monetary problem, and when I say this I particularly want you to avoid making the mistake of assuming that it is the profits of the banking system which I am attacking. I think these profits are exorbitant, but they are quite unimportant in comparison with the disastrous effects of the system itself which the bankers operate.[11]
    Mr. Murdoch – “You think it is a fair thing to dip into the reserves and profits of these banks and in a
    sense confiscate them?” Major Douglas – “I do not think it is a question of confiscation at all. There is a Spanish proverb which says, ‘He who robs a robber earns a hundred year’s remission.’ and I regard these undisclosed assets and many other assets as being quite unjustifiable.”[12

    Oliver Heydorn]

  3. If you owned all the money in the world and I all the land, how much would i charge you for your first night’s rent?

    Land Value Tax is a vital component to re-balancing the natural advantages owners of prime land have over someone earning a wage or running a business. George was more concerned with the challenge to justice and freedom from monopoly power than he was about government revenue.

    How much have those vacant property owners in the Newcastle mall made over the years? If we just printed money when the economy faltered, these so called owners of the earth would make a fortune without the counterweight of LVT.

    For your next post, check the peak of US land prices (1st quarter 06) and then track how loan books were written down, leading to a reduction in credit available. This finally filtered through the economy to hit the mainstream Sept 17, 2008. Taxing away the speculative land rent steadies the ship.

    Not taxing, just printing would lead to some interesting comments from the rating agencies.

  4. Dear Bill

    The price of land depends essentially on 3 factors: the size of the population, per capita income and the productivity of land, that is, farm yields. The bigger the population, the higher the price of land; the higher per capita income, the higher the price of land; the more productive land is, the lower land prices will be.

    Let’s illustrate the last point. Ruritania has 40 million people and 10 million hectares of farmland. It is a closed economy. Each hectare can feed 4 people. That means that all the land is required to feed the population. Further down the road, Ruritania has 90 million people, but each hectare can feed 15 people. That means that only 6 million hectares are needed to feed everyone, so 4 million hectares will lie fallow. Obviously, that will put downward pressure on the price of farmland.

    Very well, in the last 2 centuries there has been enormous agricultural progress, which made it possible to feed more and more people with the same area of farmland. I wouldn’t be surprised if land wasn’t such a good asset to buy a century ago. It should also be pointed that elevators increased dramatically the spacial productivity of land. With elevators, each hectare can provide far more floor space. Imagine how much more land would be needed if there were no elevators and no buildings with more than 3 floors in the world. In any case, land is only a small fraction of total capital today. How many of today’s billionaires are big landowners?

    Regards. James

  5. @James
    If you subtract the role of oil in increasing agricultural productivity then you will find that the increasing use of ranch style farming has reduced production per acre.

    This can at least be clearly seen in Ireland and Scotland upon the introduction of capitalism ( Sheep ranches replacing more labour intensive cattle transhumance activity)
    These ranches became more financially viable but only under the perverse incentives of a usury based system.

  6. Bill, here is a proposal of a LVT in the UK and how it would basically work:
    This site also has a lot of information on land taxes if you were to research more.
    When we refer to land we are talking about the ‘site premium.’
    For example, what makes a house in London worth more than in rural Scotland? It is the better location, schools/hospitals, etc. This is created by everyone and belongs to the community.
    Advantages of land value tax:
    1. The tax encourages people to use land efficiently or sell it onto someone who will, reducing urban sprawl and derelict buildings.
    2. Since the supply of land is fixed and not produced by individual landowners, there is no ‘dead weight loss’ or ‘laffer curve.’
    3. The people who benefit from public infrastructure make a contribution towards it. This also reduces the chance of ‘white elephant’ projects/corruption and stops landlords sucking up gains from basic income or job guarantees.
    4. The tax reduces property (land) bubbles and acts as quasi bank regulation. An example in the UK is ‘business rates’ housing bubble was less than for residential property.
    5. Land ownership is very skewed, especially against the young.

  7. Ps – not agricultural land but how can you explain the presence of 8,000+ empty houses in old cork city (total + 40,000)

    Simple – prices exceed income, people leave for foregin shores.

    But how is this possible??
    Surely prices and income should balance.
    Only social credit theory can adequately explain this conundrum.

  8. Yes exactly…yes Henry George and the writing of Mason gaffeney show that they are not familiar with Functional finance and how currency issueing governments are not revenue constrained.
    But none the less a land value tax will be beneficial primarily because it socialises the ground rent and controls land prices and prevents banks from capturing the land rent through mortgages; inflating land prices.It will make property more affordable and decent quality housing more accessible for the working classes.
    Michael Hudson has written about how the land value tax will prevent banks from bidding up property prices as borrowers and speculators clamour to pledge more and more of the ground rent towards banks in the form of mortgage interest payments.
    We should socialise the ground rent and stabilise land and property to prevent asset price inflation.Delivering accessible and affordable homes for working people.Instead of having runaway property price inflation forcing working people to devote more and more of their earnings to line the pockets of private wealth.
    Fred Harrison has written convincingly that a land value tax would stabilise western economies and genuinely put an end to the land market led booms and busts.He has identified a”18 year” cycle were bank finance for land (frequently urban residential land) pushes up prices until banks eventually over expand their balance sheets causing a credit crunch and a real economic downturn and then unemployment.
    Fellow Aussie Philip J Anderson has written about this extensively in his book “The secret life of real estate and banking:how it moves and why”.He charts the last 200 years of economic downturns and boom and attributes it solely to the capitalisation of monopoly ground rent; the privatisation or enclosure of land.
    Michael Hudson fully understands the FF paradigms but still supports the land value tax because it will prevent asset price inflation and the consequent rise of inequality. Michael Hudson and Fred Harrison also advocate getting rid of sales taxes and taxes on incomes and even company profits,because they are dead weight losses on the economy.As Mason Gaffeney frequently says “All taxes come out of rent” or ACTOR.Ultimately the purpose of taxation is to limit private spending power.But the burden should be placed on the ground rent through a Land value tax

  9. Twisted evolution of the Single Tax idea?

    Pity we don’t train all students to more gracefully handle the simple distinction between dynamic assets and static assets. That fundamental step would alleviate most of the confusion about currency, taxes and public initiative.

    “All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.” John Adams

    That was 200 years ago. Surely it’s time to end the rampant confusion, by cutting it off at the pass … in first grade? Or at least by age 10?

    Kids intuitively learn that scorekeepers can’t run out of the tokens used in game scores, nor run out of the arbitrary but real credit assigned to those tokens by the aggregates hosting the games.

    Why not just be honest about linking that empirical reality to the games of markets, including Natural Selection games, nation states and human cultures?

  10. @The Dork of Cork
    That might have something to do with The Government agency National Asset Managing Agency acquiring thousands of properties and withholding them from the market to artificially create scarcity and support higher prices;for the benefit of asset holders and banks.
    A pretty odious policy considering the huge homelessness problem Ireland faces.
    On top of the big private commercial banks which are sitting on thousands of properties and withholding them from the market..This is all done to bolster and protect prices and high rents (mortgage payments) for the banks.This behaviour would not be economical if there was a land value tax.Banks would be forced to release the property back on to the market;making property more accessible.
    It is a disgrace that they are allowed to do that in the face of endemic homelessness.

  11. @Jake
    Yes – a policy to save the banks double entry books at the expense of society and the physical economy.

    Back in the day I gave a far too rational solution to the problem.
    Transfer bank deposits into post office accounts and let the property deflate to a point where they could be purchased at a reasonable price..
    Anyhow the euro crisis has proved that the social creditors were and are closest to the truth and iof course the nature of our problem is much deeper then land and houses (which is a part of the torture machine)
    And of course the nature of the state as projected by these demons as a complete illusion.

    Now all we need is St Michael to get the F£%k down here and slay the London Dragon.

  12. Silly me, silly me
    To think that I thought parts of the state were honest representatives of society
    I am so ashamed of myself
    Such a foolish naive soul.
    You would think after seeing the back end of the corporatist union control system work in the real world that I would hold no illusions on political life.

    But the euro is a great gift in so far as now we know, now we know.

  13. There was a simple solution, no need to tax anything

    Just give the property away to mainly young families.
    Why Can’t people hold a bit of land or property for themselves.
    There is no point working for something that is already made.
    It’s time European society returned to its peasant christian roots.

  14. Georgism effectively views rent as a privately collected tax. So I am not sure how you would incorporate this into MMT. Perhaps a fourth sector? Despite libertarian claims to the contrary, land value is not created by individual landowners and property rights are not handed down by Jesus himself.
    Just as taxes give the government currency monopoly value, so do land rents. If I claim land I can claim rent (perhaps even in my own currency, if I chose.) Land is the second greatest natural monopoly, after currency. This is why I am concerned over sovereign wealth funds buying land and real estate, although this view could be irrational. What do you think?
    In any case, a tax that is impossible to avoid, payment for services given, with no dead weight loss should be considered a good idea. It is comparable to the sale of e.g. broadcast rights on certain frequencies. We certainly would not give those away for free.
    If we are going to implement MMT and sensible bank regulation, why not go the whole hog and implement Land Value Taxation as well?
    Range/score voting is another good idea and should be in the Progressive Party’s manifesto (do they still support MMT, perhaps you and others could create an MMT party?)

  15. If you do want to retire money from the system, you wouldn’t want to do it in a way that distorts incentives would you? Like taxes on income and capital.

    We’d only want to retire money from negative externalities. If those aren’t sufficient then it’s immoral the State should spend more.

    LVT is not about funding the State. It is compensation paid for exclusive occupation of a unreproducible factor of production. End of story.

    Could Land rent and other Pigouvean taxes fund current spending? Yes of course, because all current taxes are paid out of land rent.

    It’s all about aligning incentives.

    I’m not an expert, but how does MMT align incentives again?

  16. Aidan Stranger said:

    “However the idea of substantially financing government spending by land value taxation was AIUI first proposed by David Ricardo”

    Ricardo did give a positive assessment, although he also cautioned that a land value tax might give the government too much control over property prices. However, numerous others recommended a land tax before him on similar grounds, including Adam Smith, the greater and lesser Physiocrats including Turgot (whose physiocracy membership is sometimes disputed), and in the political sphere, various English Whigs. I’m pretty sure you can find precursors even before that.

  17. This is a absurd conversation.
    Paying taxes is simply paying rent to the state

    Again I have to remind yee statists what the state is.

    “The modern State is an unlimited liability corporation, of which the citizens are the workers and guarantors, and the financial system the beneficiary”

    Bob thinks land tax will reduce urban sprawl.
    This is not the case.
    You will simply give your surplus back to a centralised state apparatus that can only dump goods of little to no utility onto you..
    The credit system is centralized in the modern state.
    The CB dictates and gives instructions to the commercial banks on how much credit poison they are to issue.
    We can see how the surplus is dumped in Ireland today.
    Car sales are up 73% in January ( the biggest car sales month) relative to 2013…….

    How does this stop burb life Pray tell ?

    Look all this bank slurry production began during Tudor times and beyond,
    BBC 4 had a very good documentary about this recently.
    It was the best sort of historical perspective .
    From the bottom up.
    Through the eyes of Shakespeare’s mother.
    She started life as a rich peasant.
    Henry viii first started to bring in puritanism ( centralizing state forces) which first was of a minor variety (preventing little old ladies from lighting church candles)
    But eventually thing became much much worse.
    The family was eventually bankrupted by the Tudor capitalist experiment.
    Only saved by Shakespeare travelling to the big smoke.
    His mother lived out her final years comfortably in Stratford on Avon but not as a rich peasant but a a proto suburbanite.
    Try to grasp how very very different this is.
    Afterwards all political power resided within the English state and not its population.
    England was no longer a democracy in a very real purchasing power sense.
    These functions were outsourced.

  18. This is completely stupid. I am too annoyed to fully respond now, but there is a huge mistake right at the beginning. Your assertion that MMT rejects the need for taxation has no basis in reality or any economic theory, including MMT. Even sovereign governments are constrained in their spending and require public revenues to maintain the value of money. The more money a government collects in LVT, the higher its spending can go on things like basic income.

  19. @The Dork of Cork
    In peasant societies across England the commoners had access to local land;the common (farm)land and rights of access to wood land and huntings rights.
    Communities shared farmland and provided strips of land for each family.Of course many lived on land were they had to pay rent to a local lord but they also had rights to common land to provide for their own sustenance.
    This was until the enclosures by the large land owners;Britain’s first round of privatisation;imposed by parliamentary decree.The “commoners” became landless proletariat who have to pay rent and work for wages in the mills and mines.This same feudal class shifted the tax burden off their extensive land holdings and onto workers’ wages and consumption.Through Parliament.

    The best way for Europe to revert to it’s peasant roots would be to reverse the horrendous enclosures and socialise the ground rents;through a land value tax.

    There is a point in taxing the private use of stuff already made,like land and minerals.You are paying for the government monopoly licences to exclude everybody else.

    The trouble with land giveaways is that eventually one half of the population has to pay rent to the other half.Or considering the rise of buy to let millionaire land lords 90% pays 10%.

    Even if young family’s were given properties,what about the next generation;or the elderly or newcomers/singletons.Eventually people will start having to pay rent to other people.If I am going to pay rent I would rather pay it to the community than private interests.Also it is unjust that landless proles have to pay tax on their income and consumption whilst the landed gentry don’t pay a thing on their land holdings.Even though my income is earned whilst land rents are not.

    Thatcher gave away social housing to former tenants.Many of these people became buy to let millionaire landlords and they are now letting these properties back to councils;due to the shortage of social housing and lack of affordable homes.

    Socialise the ground rent through a land value tax because no one created it.Every citizen has an equal claim to ground we walk on;private property is theft!

  20. @The Dork of Cork
    A land value tax imposes efficient land allocation usage.Private land lords can not sit on acres waiting for land values to rise.
    The tax creates affordable housing opportunities in city centres as the tax stabilise urban land values;no need to buy in surbubia and commute into town.

  21. @Jake
    We live in a Industrial world.
    As long as the system is producing a industrial surplus then social credit rather then Bellocs distribution rules apply.

    I imagine with a even limited social dividend people would return to the land on a part time basis.
    I know I would.
    Give me 10 acres of rock and bog etc etc,
    Perhaps as a crofter rather then. Owner – I don’t much care either way.

    Taxes are a centralising force / vortex.
    Progressives need to get beyond this idea that they must tax this and that.
    Once the mechanism of bank credit production is stopped there is only a minimal need for tax and also people with independent means can democratically control where local taxes is spent to a much greater degree.
    We would see a return to real democracy rather then the false and absurd ballot box democracy of Ireland and other anti states which in truth has been a failure since” independence.”

  22. All efficient land use is wasted on the other side of production.

    You don’t seem to get it.
    We have reached the end of the efficiency road.
    The goods produced now are effectively unusable.

  23. Current production is not designed for human consumption.

    Production is dumped on the population.

    People function as mere conduits for a detached from humanity industrial loop.

  24. A example –
    Let’s say you live in a west of Ireland village.
    Your neighbour produces lovely flowery spuds that you would like to buy for both social solidarity and taste reasons.
    However you cannot buy this because you don’t have the tokens.
    You are forced to buy your food from a German discount store 10 miles away.

    I experienced this myself last summer.
    I caught many 1000s of fish last summer.
    I gave them all away.
    Including to a old man who passed away this winter – the last of the old stock
    Perhaps I am not a good salesman but the purchasing power was simply not there.

  25. “The trouble with land giveaways is that eventually one half of the population has to pay rent to the other half.Or considering the rise of buy to let millionaire land lords 90% pays 10%.”

    You must understand the value of the rent is not in the house or land.
    The rent they are attempting to extract comes from the industrial surplus.
    These rentiers are engaged in extracting a free lunch.
    Now there is nothing wrong with a free lunch as long as it does not come at the expense of others.

    If people had access to a national dividend there would be no need to engage in such practices as peoples material needs are not infinite.
    I use one house and another family can use another.
    Believe me there is no shortage of houses.

  26. The alien Irish CB is deeply involved in creating this savings pathology.
    The lack of token or flow policy forces people to hoard.
    This has many negative effects including reducing village like. cooperation.
    This forces people into the arms of the hypermarkets.

    I think its pretty obvious by now.
    These money power entities are on a deeply religious mission to destroy all society.

    The reality of the situation can no longer be rationally denied by nice progressives.

  27. Excellent work!

    And it allows one to tie a lot of loose ends, too.

    Henry George, although apparently of humble origin, surprisingly managed to become quite successful politically in nineteenth century U.S. even though, if one accepts the Georgist literature, he was all but declared anathema there (interestingly, this literature also claims that the American red scares were in reality anti-Georgist scares and that, indeed, the marginal revolution of the 1870s was a movement directed against George!).

    But he wasn’t popular only in the U.S. He visited Britain and was very well received among the “progressive” intelligentsia there (the Fabians, Christian socialists, et. cetera). Apparently, he also visited Australia in the 1890s.


    One of his disciples, Philip Wicksteed, an English theologian and economist, was one of the second generation marginalists (together with John Bates Clark, and Knut Wicksell). So, apparently, neoclassical economics and some strands of middle-class “progressive” thought were linked since the beginning.

    (Michael Hudson’s article is excellent, too)

  28. Hi just some quick thoughts.

    The LVT should fit just fine with MMT as a tax it’s agnostic on whether tax is for funding the State, or to drive demand for a currency, and regulate inflation and unemployment.

    Henry George did begin to write about money and was of a Chartalist persuasion in his conclusions.

    Finally if a Country adopted and held to MMT principles I’d emigrate there, but more to the point it’d likely go in a Georgist or proto-Georgist direction. Why? Because land is totally inelastic in supply never-mind comparative location values, the Government of the day would have to deal with issue of money it’s putting into the non Government sector being sucked up into ever inflating land prices.

  29. “As an historical fact, George was incorrect. Real wages have grown over the last century as productivity has grown.”

    Yes of course, but you are misquoting George and Georgists.

    The point is that gross wages increase BUT the rents and house prices which people have to pay increase to soak up much of the higher wages. So all in all, it is landlords and people selling land who get most of the benefit of wages increases (or a disproportionate amount, shall we say).

    So once you have bought a house, you benefit from increases in wages as your housing costs are fixed. But until you have bought a house, all your surplus income goes on rent.

    In the UK, they have pushed rents and house prices so high that very few people under 40 own their own home.

    Anyway, I’m not sure you haven’t misunderstood the basic principles of MMT, which are I believe as follows.

    1. Governments do not need to borrow money or collect tax in order to spend. They can just ‘print money’ and spend it. This is correct.

    2. The main aim in collecting taxes is to ‘unprint’ money, thereby preventing hyperinflation (assuming that you want to keep government spending at 30% – 50% of GDP like most western countries). This is just as correct but you often seem to overlook it.

    Therefore, LVT and MMT are perfectly compatible approaches to spending and taxing.

    The LVTers merely point out, that whatever reason you are collecting tax for, it is always better to collect LVT than to tax incomes or output. Which is observably true.

    The fundamentalists (of which I am one) go as far as to say that even if the government does not need the money it collects in LVT, it is better to collect it and just dish it out as universal welfare payments than it is not to collect it at all.

  30. Mark Wadsworth,

    Can you provide a direct quote where Bill has advocated printing money as a key component of MMT ?

    I’m pretty sure you can’t.

  31. Dear Mark Wadsworth
    You are close to understanding MMT.
    Govt spending works by crediting bank accounts. Taxes work by debiting bank accounts. There is no “printing money.”What gives the money value is the fact people have to pay taxes in the currency (e.g. UK pounds.) LVT is perfect in this regard as it is unavoidable and does not distort activity and 100% LVT will give strong demand for the currency. Governments choose to borrow back their (own, spent) money to give the private sector risk free savings. This is purely voluntary and no less inflationary than “printing money”, it is political (e.g pensioner bonds) and might even be extra inflationary due to spending of interest (you can see why QE fails) Since the end of the gold standard and fixed exchange rates (Black Wednesday, 1992 in the UK case) the govt can spend any amount of money on things in its own currency as long as it has no foreign debts or fixed exchange rates.
    The govt (currency issuer) when it spends collects money through various taxes (VAT, income tax) apart from savings and net imports get its money back. All taxes come out of rents so LVT is needed to ensure constant supply back to the govt as we all have to pay rents. The govt can vary its spending for inflation and other factors, with tax system fixed.

  32. Dear Bill
    The value from the right to exclude others from land is not real capital or wealth. It sums to 0.
    Each of us owning a house places a tiny burden on others (neg externality) as do they. Look up the law of rent – rent is determined by the next best alternative.
    The land value should be destroyed (taxed.)

  33. This is a lengthy article about rather little. George was right to minimize operation of government, restricting it to what the free people themselves cannot do. Collecting the market-set “rental-value of sites” (ignoring improvements) — quite a different thing to settling tax rates against “land values” — is a core duty of government. This elegant solution is necessary to force optimal use of sites, interdict speculation, ensure intergenerational equity and cut site price to nil. Better to collect the rent and throw it in the sea than not to collect it at all. The resulting fund is the proper (and only proper) public revenue; it does not distort or oppress labour, effort, employment etc. Government does not need to meddle in economies, its role is merely to collect the site rent and expend this fund (and only this fund — this is the limit of its reserves) on essential public infrastructure. With site price at nil, labour can easily demand proper reward. With sites forced into optimal use, employment must boom.

  34. History is on the side of those who favor government issuance of currency (debt free) over its issuance out of thin air at interest by a central banking entity owned by commercial banks. The authority to issue bank notes that must be accepted as legal tender and as the means of payment of taxes is a powerful tool in anyone’s hands. History is also on the side of those who conclude that government officials will eventually succumb to the temptations to debase the currency for their own short-run advantage.

    I understand that my views are very much in the minority by favoring receipt money, fully backed by a claim to something tangible and very specific. Whether a currency is redeemable in coinage minted in gold and silver or in some other basket of goods is far less important than that the currency is redeemable in something specific.

    What are central bank notes issued today? I describe them as “promises to pay nothing in particular.”

    History provides some interesting lessons. The creation of the Bank of Amsterdam as a deposit bank without lending authority contributed to the expansion of international trade. Adam Smith describes the virtues of the Bank in some detail. Unfortunately, the bank was not adequately regulated and audited, which eventually led to the corruption of its operations. Subsequently, no bank was ever chartered as a deposit bank to hold reserves equal to certificates of deposit put into circulation. The world monetary system went from full reserves, to fractional reserves, to (today) no reserves.

  35. Thorold Rogers noted in Six Centuries of Work and Wages “the fifteenth century and the first quarter of the sixteenth were the golden age of the English labourer, if we are to interpret the wages he earned by the cost of the necessaries of life. At no time were wages relatively speaking so high, and at no time was food so cheap.” Today’s labourer with a family of five can’t save anything like the 2/3rds of his wages after food, clothing and shelter as in those days when the economic rent of land was captured for revenue.

    Also, not so sure about real wage increases over the last 40 years, Bill, since it became fashionable worldwide to wind back taxes on land. See http://thedepression.org.au/?p=1802 Of course, if we captured more mining, spectrum, fishing, forestry and aircraft rents, instead of taxing labour that might help world economies right now, too. Seems to me the Henry Tax Review had it pretty right, but both parties have buried it.

  36. “In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level.”

    What’s the value of the fiat currency issued by a govt with no tax revenue? Zero. Of course, govts need tax revenue to fund spending (though they fund it with tax receivables, i.e. fiat money, rather than tax income).

  37. Georgists are not deficit hawks or inflation hawks.

    Henry George himself was a greenbacker, not a gold bug.

    I think most Georgist believe that deficit spending (either through a UBI or ordinary government programs) are how money should be put into the economy.

    I don’t see why Georgism and MMT should be considered in opposition to each other.

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