currency

At last, someone with a bit more radical idea about the sort of thing that needs to come out of this banking crisis. Colin Breed, Lib Dem MP for Cornwall, and a former banker himself, is calling for a radical shift to more local banking.

I still think my idea is better and more radical, and have fired off an email to try and make contact with Colin.

...a society made up almost entirely of mendacious megalomaniacal psychopaths, do declare that the causes of the current economic crisis are basically nothing to do with us:

3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.

God it makes me sick. Lying miserable tossers. Understand this well. Maintaining low interest rates, in order to get more people borrowing more to put into a land price bubble which would enable others to borrow to spend our way out of a mini-recession at the beginning of the century was DELIBERATE PUBLIC POLICY. Deliberate public policy the effects of which were to make the poorest and weakest in society attempt to take on unacceptable levels of debt and risk just to prevent themselves from being ripped off even more in the future.

Not only that, but they knew at the time it would lead to problems later (Eddie George said: "My legacy to the MPC, if you like, has been 'sort that out',"). They simply hoped their successors could get us out of those problems. I think we should take their prescriptions for recovery with all the salt in the world's oceans.

A week or so ago Mike Killingworth challenged us on Liberal Conspiracy to show what "Lovable Banking" might look like in response to the daily emerging news that we've been shafted regularly by the banking system since, oh, at least 1695. Some of you will know that I have long taken an interest in things like local currencies and mutual finance and perhaps also that I've been looking into the use of the Limited Liability Partnership structure as a way of building multi-stakeholder less toxic alternatives to purist shareholder capitalism.

Well a couple of weeks ago I was contacted out of the blue by a chap, Frank Churchill, also in Oxfordshire, who has been looking at similar structures. In his case originally I think as a less toxic alternative to developing world microcredit systems (did you know that the effective interest rate including all charges and so on on Grameen or Kiva micro loans can get as high as 80%!) and as a way of monetizing voluntary work - mainly involving carers. We've both been steadily battling along on our own on this, trying to understand the structures and build solutions to common issues around them - in my case, mostly things like affordable housing and supporting local businesses.

And so we've got together and are, hopefully, on the verge of setting up a "think and do tank" (to coin a strap line from another - less popular amongst liberal economics followers - organization, the New Economics Foundation; but don't let that put you off - some of the issues are the same but we believe the responses are more mutual and liberals than theirs) in the form of a "Community Finance Partnership".

The Limited Liability Partnership structure was created, ironically perhaps, to get the professional firms such as accountants and lawyers out of being personally liable for the debts of their partnerships - the vast accountancy partnerships in particular were worried about the sort of "Enron scenario" of being held liable for multi-million pound lawsuits and were threatening to move their registered offices away from the UK if we didn't give them limited liability. But inadvertently they have created a beautifully simple mechanism for bringing all the parties to an enterprise - the providers of capital, landlords, customers, workers and suppliers and so on - in, if they wish, to share in the risks and the rewards of pooling their contributions to the success of that business as partners.

A partnership agreement can involve different classes of partner receiving different shares of the profits depending on the worth of their input to it - just as a co-operative structure does. Companies may be partners, or even other LLPs as well as individuals. And the partnership itself is tax transparent so each partner is responsible for accounting for the profit or loss in their own tax affairs. Some of you will be aware that I think limited liability in general is a Bad Thing that takes the personal responsibility away from business owners, but in this case it matters very little since every connection with the business could become a partner and share that responsibility explicitly.

The Community Finance Partnership can we believe fulfill a great number of roles, offering a portfolio of products for consumers and a steady return based on those to investors - the aim is to produce an index-linked rate of return in the form of a "rent payment" for the use of the capital partners' (investors) funds. "Customer partner" products might include interest free mortgages - called Property Investment Partnerships, personal loans such as with Credit Unions and business finance "repaid" through a portion of the successful businesses' turnover.

One "flagship" product we are hoping to develop is the idea of a local complementary currency, probably in the form of a Nectar-like loyalty card system that businesses with a base in the geographical area can buy into and which would be able to monetize currently unpaid work like volunteer carers whose value to the local community and especially health services is enormous. The possibilities are almost limitless. For example another idea would be to finance the equivalent of PFI schemes - for example if Oxfordshire County Council wants to rebuild some schools, but with local investors sharing in the reward. And such a structure could be used to provide the mutual finance system for universities I mentioned earlier today.

Think a cross between a loyalty card system, a credit union (more on the US or Irish style than the British), a mutual building society but with the ability to lend to business and not just on homes, and possibly a friendly society offering local mutual insurance and pension products. It's early days yet, and we're still working up what each product would look like in financial terms and the sort of prospectus we'd be able to offer investors, but I'm very excited about it! We think the time is ripe for a return to more human scale financial institutions that people can become a part of on a local more human scale.

...but strangely intensely exciting at the same time?

I'm just watching the news on Channel 4 and they've got all this coverage of the squirming going on in Washington and Wall Street.

Is it just me or am I right in the impression that Privilege and Power is absolutely terrified at the moment? That "they" really believe things are on the edge of a precipice which threatens systemic melt-down or revolution?

And also that there is a real massive popular movement going on to get the message across to "the Hill" that "they" will not be forgiven for allowing "our" money to pay Goldman Sachs bonuses.

...and we still don't seem to know what to do about bankers!

The Bank of Scotland, whatever is now left of it, is 312 years old. That of England just two years older. Ever since the banking system has been built on state protectionism, corporate welfare, monopoly privilege and, at its heart, a gigantic fraud.

The fraud was that a goldsmith could give both you and I receipts for my gold stored in his vaults and make money on both - from me a fee for keeping my gold, from you interest on the receipt you had borrowed from him. Indeed they found they could duplicate this so frequently, fraud upon fraud if you like, that though gold is perhaps regrettably no longer the basis of our money, the "hardest money", real "hard cash", amounts now to just three per cent of our total money supply in terms of everything we all have collectively borrowed and deposited.

To be fair, most goldsmiths at least issued notes of their own. Customers - both depositors and borrowers - chose which goldsmith to bank with on their reputation. If they became overstretched, issued what was felt to be too many receipts for the same gold, their notes would be less desirable in trade, there may even be a "run" when all the receipt holders tried to get their "real" money, the gold, out of the bank, which of course had much less gold than he had issued such receipts for. Nowadays, however, what they create and destroy in their lending business is denominated in the national currency, a currency issued nominally at least, by the state and guaranteed by the state.

This means it is no longer a private affair between a bank and its customers as to whether their business practices jeopardise their customers' savings; it is a problem for us all. We have ceded control of the supply of money issued in our name to private businesses whose main aim is to make profit for themselves and who, in the course of that otherwise noble pursuit, play fast and loose with the very air the entire economic system requires to function. And states protect them, bail them out as seems about to be the case in the US to the tune of almost countless billions, because they have to guarantee the currency they have so little control over.

Regular readers will know I am very fond of a quotation from Josiah Stamp, Liberal politican, Chairman of the Midland Bank in the 1920s and reputedly second wealthiest man in Britain in his lifetime:

"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again.

"However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits."

It rather seems to me that with the events of the past few days, we may be "taking the earth away from them" (or, more accurately and nauseatingly, buying it back from them) which they have stolen from us with their inflationary approach to money, but leaving them the power to create those deposits all over again with which, in the next bubble, they will buy it all back again.

Everyone seems to think that money has somehow been pretty constant. The way it works I mean, not whether we call it shillings and guineas or pounds and pence. But the current confidence trick really began with the depression of the 1930s and the work of two extremely wealthy, powerful men in the US who persuaded the government of their day to set up the system that enabled them to create "our" money according to their corporate priorities. The results of John D Rockerfeller and John P Morgan Jnrs' work was the Federal Reserve and the rapid ramping up of fractional reserve banking, and the eventual demise of real solid backing for that currency.

If the current crisis really does turn out to be the "big crunch" at the end of the cycle begun by that 1930s "big bang" we should be ready with policy to replace that fraudulent, anti-competitive, oligarchical system, designed by the very wealthy to keep them that way for little actual productive work with something different. Entirely different. I do not detect any mainstream politicians with the cojones to say so. Our governments and politicians are but eunuchs to the bankers, and the longer that continues, the more the vast majority of us will suffer.

Following on the theme from my post this morning about how we could protect data about us held by agencies of the state by using a sort of a personal key and PIN like your bank's call centre has to validate with you before they can access your data, my mind wandered onto other uses for such a key.

It has been a recurring theme in this blog that the internet in particular and modern communications in general represent a great threat to the balance of power between states (and incidentally also global "intermediary" corporations) and their citizens. I say threat, but it's only a threat if you are in a position of power in a state or corporation seeking to continue to exert control over your citizens. Indeed, for the individual, it is the greatest potential opportunity, and the vehicle by which Richard Cobden's quote at the top of this blog's front page may become reality: "Peace will come to earth when the people have more to do with each other and governments less."

Many of our institutions - governments, trans-national corporations, even currency - evolved to deal with issues of trust between people who would likely never have personal contact with each other in ever more remote markets. When trading, you've got to be able to trust that you will be paid for example - one person's "IOU" is not as good a guarantee as piece of paper endorsed collectively by an entire state - a national currency.

But we have an ever increasing range of other innovations to help us trust each other; developments that are increasing quickly with the advance of the internet. We can access our credit files, we can buy digital certificates that help give others confidence to trade with us over the web because they guarantee we are who we say we are and so on. So why not shift these into the "real world".

Why do we actually need, say, a passport to travel across borders, issued by a nation state, when we could have just as secure a guarantee of who we are through some kind of personal digital certificate from an organization bearing the risk, with strong encryption embedded in it? The British government keeps trying to sweeten its totalitarian ID card scheme by telling us, amongst other things, that it will make proving our identity to others in all sorts of transactions much easier. But in fact the history of government involvement in protecting the source data of those identities is appalling, and, as the technology gets more pervasive it seems to be getting worse.

How much confidence can you have in a government issued identity mechanism when so much data has gone missing already? Those identities are, thanks to state incompetence, all but worthless. Of course that's why, partly at least, they want to take biometric data. But in computer security it is generally accepted that being able to produce "something you have" (say a credit card or internet digital certificate) and "something you know" - a password, PIN, or private digital encryption key is far better than ony one or other of these pieces of information on its own. So far as I can see the ID card system, or the passport, with or without a national identity register, does not fulfill both of these - only the former. It is inherently weaker than the commercially available alternatives.

So, why not replace the need for passports issued by a state with identity mechanisms authenticated by trusted corporate or social organizations for whom financial success or failure rests on people being able to trust the people they certify. So you could have a personal account with Thawte as the primary guarantor, for example, and that certificate could be counter-signed by a certificate from other organizations, such as governments, who want to "mark your card" as one of their citizens, granting you the protections normally written on a passport.

It's not easy to get some of these certification authorities to guarantee your bona fides. You need often as much verification as you do to get a passport with other trusted people verifying who you are and so on. But you would not need to give these data to the poroous security mechanisms of the state which has proved beyond any reasonable doubt that they cannot keep the information secure, nor does it offer the other benefit of a private contract - the ability to sue the ass off them if they damage your reputation or security by losing your data - or the corporate incentive of only being able to make a profit if you actually deliver on what people expect of you.

And you also get a choice of how strong you want the certification to be. If it's only guaranteeing small personal trades for example, you may only need to spend a few pounds and fill in a quick web form, validate your address and you're in business. If you want to travel overseas, or deal in bigger sums, or trade with distant counterparties, you may want stronger levels of guarantee and pay accordingly. It's a global standard pretty well too. So you'd have no problems using it to prove your identity in all sorts of applications - travel, trade, opening a bank account, starting a company, getting insurance, benefits, accessing what little data about you the state actually needs and so on - none of which would need to be on any single central database owned by a bunch of data-incontinents like the government is proving to be with the attendant dangers of losing all your data at once.

So, you see, we no longer even need governments to help us prove who we are. And in fact they appear to be singularly bad at doing so. The threat inherent in this is that the currently all powerful state needs to be able to do this, or it loses control of its citizens. And they are shit scared of that. If we are not mindful, in their lust to maintain that power they will get immensely more authoritarian and intrusive. The time is coming when we will no longer need them. We must do all we can to hasten that day before they get their claws in too deep into these emerging trust mechanisms.

Again, I'm starting a new post to respond to some very interesting comments by Tim Carpenter. My inept attempt at a Drupal template means it's almost possible to follow a thread of comments and especially given this is going to be another long response I think it deserves an airing on its own.

For anyone coming new to this debate, it follows on from my original "three point plan" for equity and economic justice and some clarifications and responses I gave yesterday to comments on that original by Tim Carpenter, Head of Policy at the Libertarian Party UK.

Tim, thanks for taking the time to respond. However I think we are, as a colleague used to say to me "talking past each one another". Paul Lockett has put it all a deal more eloquently than myself , and for that, and if I have caused any confusion, apologies.

I am a geo-libertarian (of the "geo-mutualist" variety if you will). The main thing you seem not to have appreciated is that in calling for the "Single Tax" I mean just that - the community/state can only take economic rent on the land resources within its jurisdiction and has no call on incomes or trade. As I understand it this is the "purist Georgist" position.

The ideal 'state' would be limited to collecting the rent and distributing it all as a dividend to citizens for the reasons Paul outlined. "Commonwealth" - you are right, it's lazy, I should put a space between "common" and "wealth"! Economic rent from the finite natural resources we all require to share is "common wealth" and should be collected as such and distributed as fully as possible whilst every other tax is a tariff.

Tim: "1. When I say who defines the value of your land, you say "why does anyone need to decide", yet immediately go on to talk about collecting the tax! Someone DOES decide the taxable value and that affects the actual value. Can you not see that?"

No, the market sets a location's value. It does it all the time at the moment. And it will continue to do so in an LVT system. Even in a "100% LVT" system. If a location is appreciating in value, buyers will be prepared to pay a premium over last year's rent bill and vice versa, in a falling market sellers will effectively have to be prepared to pay someone to take the rent bill off them. The following year's rent bill will reflect that premium or discount by going up or down respectively.

Tim: "2. As you should know, we aim to eradicate income tax., so the comparison does not hold."

See above - I'm a single taxer. No income tax here either. It is a tariff on employment and trade. Though I would say that if a local community decided mutually to have a local tax on incomes or sales to finance some mutually agreed local project it would be doing so in competition with neighbouring communities that perhaps were not or were charging a different rate or a different tax. Tax competition is good, in itself, isn't it? Also I am aware of some "single" taxers who would justify retaining some income tax at least temporarily in order to try to address the "embedded" historical advantages of monopoly ownership. I don't.

Tim: "The problem comes when some local area under the influence of whomsoever, adjusts taxation on land they wish to gain access to because a new development is coming. So, building a road, whack up the value of land next to it. Farmer has no CAPITAL to develop it, so has to sell it for a knock-down price because he HAS to sell to meet the tax bill. If this does not concentrate land into a few hands, I do no know what would. This is just one example of the potential risks."

This appears to be Churchill's "market gardener" bogey, or, to others, the "poor widow" bogey. If you look at it under the current system, that same farmer, in similar circumstances is perfectly able, regardless of the squalor growing around, to sit on that land, not paying anything and watch its value "ripen" until the value, created merely by excluding others from what they need to use, is so great it becomes irrational not to sell. That process is outright extortion.

In fact, under an LVT system, land values at the margin would tend to move much more incrementally in any case. In the absence of other restrictions - zoning, green belts etc (it is your policy to remove those restrictions once an LVT system proves practical isn't it?) - you would not get these large leaps in hope value. I would actually retain green belts and such like for a while after LVT was implemented so that it can have its greatest effect in turning existing urban land to its most efficient use before going for sprawl. But I am prepared to be convinced on that. After all, we know that at relatively low densities compared with what planning guidance seeks nowadays, it would take up less than three quarters of one per cent of the non urbanized land in England to build the three million new homes predicted to be necessary over the next twenty years.

But once a point of equilibrium was reached between supply and demand rents at the margins of production would move slowly and via the democratic influence of the market. If that market and the community that makes up its participants eventually get as far as that farmer's land and all that remains to bring it in from the margin to profitable development is to develop a road, the farmer will have had plenty of opportunity to see it coming long before the tax bill becomes an issue for him.

Tim: "3. Living costs - if you have CBI as described you would still keep the most expensive parts of the Welfare bureaucracy - the entire means-testing apparatus. Housing benefit would probably remain in all but name."

I disagree. But I don't think what you understand me to have described is what I think I have! ie, in particular, that I am not paying for CBI out of income taxes, but out of the community collected rent on economic land. Land at the margins tends as I said towards a nil value. More people will be able to own their home because they will not be borrowing twice as much as the value of the capital good (the building) in order to pay the land value in up front capital. Renting a basic home at the margins ought to be achievable out of the Citizens Income.

With so many pulled out of poverty anyway by not having punitive benefits withdrawal regimes that reduce the marginal value of doing even the smallest amount of paid work and by the reduced costs of living owing to tariff eradication and the better off keeping more of their own money, the capacity of private charity or local mutualism to assist the much smaller number of people that would be needing top up hand outs above their CBI would be much increased.

Tim: "4. Income. You need to clarify here - are you saying that COMPANIES have 40% more or that wage earners do? Be under no illusions, if you have CBI, income tax will be enormous. I worked out once that if we went for CBI with no other tax changes but a cull of QANGOs, income tax would need to be about 64% flat from the very first penny (IT is currently £140bln, 7k x 50m = £350bln pa). A HUGE disincentive to working especially at the lower end. Result: black economy, unproductive citizens, more companies shutting down and a growth in imports (and do not say "cheap imports make us richer" because that only holds if we are simultaneously exporting a greater amount of higher value exports)."

I hope you'll agree that that objection is moot given I am not talking about income taxes at all. My calculation of the CBI cost at £5200 pa for adults and a decreasing proportion for under-18s to 20% for 2 year olds is around £285bn. £245bn if only the adults. I reckon there was about £200bn a year's worth of economic rent in residential land alone at the recent peak of the market. I don't think it is beyond belief that there's another £85bn in commercial, industrial, retail and, possibly, agricultural economic rents.

Tim: "5. Movement to low tax areas: A company will consider workforce supply as a prime consideration, not just rental costs. If that were not the case, expensive London would be empty. People pay top dollar for London rents because of a massive pool of labour - they can gain access to many cheap or more chance of snaring the best. To think LVT would make a company move out to a depressed area? Those places are already cheap. Why doesn't it happen now? Limited skilled labour pool. As you say the Government does it now and did it in the past (remember the Hillman Imp?) and it creates quasi-soviets. If LVT has an influence, it might IMHO move a few companies, deter some from even setting up where they need to and the rest of the companies will be bled paying higher rates just to keep near the labour pool they require. In the case of London, the move will be to New York or Hong Kong and we all lose out."

There are so many issues in this paragraph I can only assume again that I have failed adequately to have explained my position. At the moment businesses pay rents, yes? In an LVT system they will still pay rents. The only difference is that whereas currently the entire rent, that which accrues to both the building and the site or location goes to the current landowner, ie it is enclosed, privatized. Under an LVT system, the same rent is due (assuming they were paying the market rent originally), only the portion of it that accrues to the location goes to the community and that attributable to the building to the building owner. There's no corporation taxes, no more employee taxes. There's no increasing of rent or rates; there's no bleeding anyone. Except those, as landowners, who have bled the rest of us for centuries.

Areas of low land value will also be areas in which it is cheaper for employees to live (lower LVT for them too). For a business operating at the edge of profit it would seem to me to be quite an attractive move. But one that remains in London because their key skills are there is not penalised by that. Indeed, if sufficient other businesses do it who do not need to be in London for optimal profitability do move, costs will also likely fall for those left behind, increasing their profit, distributable to capital and labour.

I think there is, in particular, one form of LVT that could have a significant effect in this regard...the auctioning of air-space, via "landing slots" at airports. Making more efficient use of regional airports would draw business into those areas. I'm likely to propose this to our regional conference this autumn as part of an "anti third runway at Heathrow" motion. Interesting choices of examples though - Hong Kong of course is famous for having state owned land - everything except the Anglican Cathedral is leasehold and that has been used to raise revenue in a form of LVT and keep income taxes low. Modern valuation tracking and billing systems would make that far more efficient and not prone to some of the problems Hong Kong suffered by having too infrequent valuations.

In China before Mao took over, I understand that Chiang Kai Chek's regime looked into LVT as a way of staving off the rise of Mao's totalitarian collectivism. And in the former Soviet Union, Gorbachev I believe looked into LVT as a way of capturing the value of natural resources and in not implementing it allowed the so called "oligarchs" (really "kleptocrats" in my opinion) to enclose the revenue from that vast pool of common wealth.

I'm getting a bit tired here! I'm going to call it quite at this point and maybe think some more about the issue of mutualism. I think Paul answered the point about the "state as landlord" objections quite satisfactorily and there's no need for me to repeat it. But for fairness, other readers can read Tim's further points in the comments on the previous post.

Tim: "p.s. your page has a script that my browser asks me to kill due to risk of resource hogging."

Yes - I only notice this on older machines or slower network connections - I never experience the problem at home or at work. I think it must have been an advertising panel I have just removed, but if others still experience the problem let me know and I'll have another look.