currency

According to the BBC, today both Tories and Lib Dems will formally outline their current plans for dealing with the regulation of the banking sector in a post election world. Neither, it seems, are prepared to think "outside the box" as that early century cliche went: the Tories looking at returning banking oversight to the Bank of England, whence it came a few years ago, the Lib Dems more firm on plans to break up the biggest banks, starting at least with the ones in de facto public ownership. However, one thing we can be pretty sure of: neither will be proposing the single most important possible change to banking that would do the most to stabilize the money system and longer term the economy...Free Banking.

As a concept it's pretty simple: Free Banking is where banks, and potentially other organizations such as communities, trading companies and so on, issue their own currencies instead of trading in the "national" currency of the territory in which they are operating. These currencies compete against each other for users. The value of each rests solely on the soundness of the business practices of the organization issuing them. If one bank/issuer over-extends itself all the others who would normally accept their currency at par with their own (say when a business customer of theirs tries to deposit them at the end of each day) will want to pay less for them and the message will soon get round that the over-extended bank needs to change its business practices, its risk profile say, or risk complete devaluation of its issued currency. There are also lots of other mechanisms that, in a free market, but not a fiat system, would come into play to ensure the currency issuers play responsibly.

The system we have today, fiat currency "guaranteed" by the nation is whose name it is issued, is the result of a long term grab for power by the state. Why would they do that, in a market that functioned quite well? Well, there are profits to be had in issuing currency - so called "seignorage". However in the current system where fiat money tends to be introduced via lending by the commercial banks regulated to do so this seignorage profit has reduced, and has also been passed to those issuing banks rather than to the state. The big reason is inflation. We take it as axiomatic that inflation can be a good thing, if you are in debt. With your future repayments more or less fixed in numerical terms if you can inflate the money supply your payments will tend to fall in real terms with time.

Who are the biggest single borrowers in our economy? Well usually the government. So the government can inflate away the running costs of their debt. Well, okay, says you, but it also eats into the costs of everyone else's debt too, doesn't it - so we all benefit from inflation, right? Wrong. Lots of us may well be in debt, but after many decades of inflation and only a few of burgeoning private debt, the lenders have become savvy to this. How many of you are now on variable rate mortgages? Government induced inflation really assists really long term borrowers on fixed rates (ie gilt issuers predominantly).

And on that subject, on the other side of the coin, if you pardon the pun, inflation erodes savings. All of us need some of those, even if we are in debt - for example for our retirement. Inflation keeps eating into our pension funds - firms and returns have to grow faster in monetary terms just to maintain the value of our savings. But equally, if inflation undermines our savings, so it also undermines the money we have in our pockets now. If we think the prices are going to go up, we want to buy more now. Inflation actually drives us into more debt, transferring more in interest from less well off to the better off lenders, so we can buy now before the prices rise.

But inflation also distorts in all sorts of other ways - if it is more difficult for us to work out as individuals whether we should borrow to buy that new Hi-fi today and pay the interest, or wait until we don't need to borrow because it will still be there at the same, or perhaps a lower price, how much more difficult is it for people who have to make borrowing decisions about investing in capital goods? Inflation corrupts the signals that prices are sending to manufacturers for example - they don't know necessarily whether they are getting a better price because of inflation or because their product is in greater demand.

Since the US finally adopted central bank run currency, followed by a fully fiat monetary system a few years later, the state has overseen a devaluation in the currency of over 98% - roughly a period of a hundred years; the Federal Reserve system was established in 1913. But this most recent decade shows the problem at work perfectly and the government's part in it. At least until 1997 the government, through the regular collaboration between the Treasury and the Bank of England, was instrumental in setting the base rate as we call it here. That is used to create a signal to all the banks who are regulated to lend in sterling that they should lend more, if the base rate goes down, or lend less, perhaps call in loans, if the base rate goes up.

After the political turmoil caused by the events of "Black Wednesday" when speculation against the pound led the government to raise interest rates three times and to 15% at one point, we were left with hundreds of thousands of households who could no longer afford their mortgages. A housing slump ensued and led to a policy for the next few years of keeping interest rates as low as possible - lower probably than the economy deserved. Just as the housing market was getting back to relative values from before that crash, another asset was bubbling - the "dot com" stocks and shares.

When that bubble burst, there was a great concern in Treasuries on both sides of the Atlantic that the burst would turn to recession (and indeed it did in the US). Gordon Brown in the UK was so concerned that Labour's first term in twenty years would end with a recession that again base rates were kept artificially low, signaling to the commercial banks that were part of this cosy central-commercial bank cartel that they should lend even more, even more irresponsibly, and we had the housing price bubble that has resulted in the current economic carnage. All the way up that price bubble the least well off are encouraged to transfer more of their wealth to the lenders and now, all the way down, that cosy relationship means that the banks, the lenders, are the ones being baled out while everyone else will suffer vast capital losses with no compensation.

And finally, central banking and its bastard daughter inflation kills. Literally. You'll notice that the history of central banking has been closely related to when government wanted to borrow to fight wars. In the past century, more of this has been done via inflation than by direct government borrowing. If there's an inflationary surplus already in the economy, go to war, destroy some capital goods, and with it some human capital and all of a sudden there are things to spend that surplus inflationary money on. If you are already n a war, perhaps an unpopular one, and you cannot finance it via extra taxes or selling debt, inflate, inflate, inflate and you'll be able to buy up your war-goods before everyone else sees the inflation in the form of a reduction in the value of their money.

So, which of Vince, or George, will take such a brave step? Of course, we know the answer - what they really want of course is for themselves to be in charge of this vast power inflation gives. But wouldn't it be great if just for once, politicians made the right policy decision for us not them.

No doubt there was a flurry of excitement amongst bansturbators and regulators today in Harrogate as the Lib Dems debated a motion on banking regulation, the credit crunch and whipping city boys. And there comes a time in a man's life when you realize that you are so far out of step with the way everyone else is thinking that you can lose confidence in your own opinions, maybe even think you are wrong and ought to cave in to the prevailing opinion. Especially when the prevailing opinion is being promulgated by such august people as former city regulator and current regulation specializing barrister Charles Marquand in his motion "Reforming the Financial Sector".

And when an alternative motion on the nature of credit creation itself was refused by the conference powers that be (even though I didn't support all of it it came closer to pinpointing the problem than all this regulatory stuff) one gets the additional feeling that actually, what the party wants, is simple messages, not necessarily the right messages. Populist measures not technical systemic change for the better.

We have three times I think now tried to get a proper motion on the monetary system debated at three consecutive conferences, and been knocked back every time in favour of these anodyne, populist and "don't have to think too hard" debates.

And this is a big problem for me. These systemic problems with the economic landscape in our world are so fundamental to equity and fairness for everyone, problems which our Liberal forebears knew and understood a hundred years ago and more and which we have an opportunity to address anew in this biggest of financial crises when everyone is looking around for a different paradigm to avoid it happening again.

Every single policy debate this weekend that I can see, on schools, on higher education fees and so on are so crucially underpinned by these fundamental economic issues. Economics is about the efficient allocation of resources of course and what are these public policy debates other than tussles for the different allocation of resources.

We will never, NEVER I say again, make significant headway in addressing inequality in our country or the world until we have grasped these fundamental problems of the economic system. If, when such an important and yes, exciting, opportunity to change that economic landscape as our ideological ancestors wanted to do occurs and we miss it, can anyone give me a good reason for sticking around? When it IS, quite simply, the most important opportunity in nearly a century to make the right changes, not just the right sounding changes.

The evidence suggests that we are a party that cares more about political grandstanding, good headlines for one constituency or another, and tinkering, than about addressing the real causes of inequity and unfairness. It may be "democratic" - in which case I am clearly on the losing side of the demos's opinion making, but one has to wonder about its commitment to liberty and liberal values if it misses the big picture so spectacularly.

Of course, I should have been there to join in the debate and put forward counter-proposals, though part of the reason I am not is the refusal of the party apparatus to accept such counter proposals for debate in the first place. But here is my contribution to the "Reforming the Financial Sector" debate for what it is worth:

F6: Reforming the Financial Sector

Conference notes that:

A. From the end of the 1990s financial institutions increasingly engaged in highly risky practices, such as excessive lending to individuals, and creating and trading extensively in complex and poorly-understood financial instruments.

From the end of the 1990s the government in power in the western democracies felt that as a result of a previous asset bubble - the "dot com" bubble bursting there was a danger that we would go into recession. For Labour in the UK that would have meant an early disaster in their claim to have become the party which the country could trust with the economy - one of the significant factors in them not regaining power earlier. Gordon Brown has made much of "ending boom and bust" and "the longest continuous period of growth in history".

Had we gone into even a mild recession in the late 90s and early years of the new century they could easily have lost the 2001 election. The "feel good" factor had to be maintained, and the way to do that was to ensure we could spend our way out of any impending recession. The Bank of England, independent in name but not really in policy, was given a commission to ensure that borrowing was kept cheap and the only way to do that without inflation was to ensure money was lent against the one thing that did not feed properly into the inflation figures - real estate. As a result, millions of people have overpaid for their most basic need, shelter, have taken on debts they would not normally have countenanced, and all for a political aim.

Of course bankers liked the idea since it meant profit for them if all went well. They knew, however, that it was risky - the old models of debt affordability had to be rewritten to enable those previously less able or willing to borrow to do so without too much additional default risk to the banks. Yes, they created esoteric new instruments which have ultimately become so difficult to value that the system has ground to a halt, but they did so in clear pursuit of public policy to inflate the money supply as surreptitiously as possible.

In summary: the bubble, the bursting of which has created the current problem, was created by politicians trying to manipulate markets for political ends and in the process has stolen, there's no other word for it, stolen billions of pounds of ordinary folks' wealth (not just now in the collapse, but on the way up too - rising house prices and rising debt are a massive transfer for the poor to the rich, just as printing new money to cope with the collapse is a massive transfer from the poor to the rich).

B. The financial sector has lost sight of its primary function of providing investment funds to businesses in favour of speculative activity and in so doing has become disconnected from the wider economy.

I don't know about others, but if you work in debt advice, you will see these symptoms in everyone. You are encouraged to borrow, to trade, to gamble, and when you start to see that it is more risky than you might have first thought you try and mitigate it, many hide it, in ever more desperate attempts to avoid addressing their problems. What we have witnessed is no more than what would be for an individual in debt a pretty normal panic response. But let's not forget, they were acting in pursuance of stated public policy - to increase levels of debt. Eddie George said so. The Treasury Select Committee heard him say so. Did they not wonder at the time what he meant? What are our representatives for?

C. In 2008 the financial sector underwent a significant shock which pushed major financial institutions into insolvency, threatening systemic collapse and having severe consequences for businesses, ordinary consumers and their families.

Indeed. So much, so obvious...

D. These events were the direct consequence of acts, omissions and developments during previous years and in particular the result of:

I. Failures by government and the regulatory agencies to take heed of the warnings of the Liberal Democrats and to take action to moderate levels of personal debt, rising property prices and excessive risk-taking by financial institutions.

II. Remuneration policies in financial institutions which encouraged individuals within them to engage in excessively risky behaviour without regard to the consequences.

Yes, the Lib Dems, both under Vince Cable at the treasury brief and Matthew Taylor before him were flagging up these issues, but the fact that nobody listened to us back then does not mean the reasons have suddenly changed. We knew this was a public policy issue back then - the encouragement of saving Britain and Labour on tick. That reason still applies, in spades, today.

With hindsight we can add in other reasons like II. but let's face it, whenever anyone has mentioned banking reform in the past we've been met with the claim that our pensions owned the banks, so as shareholders they should have been more concerned, yes, but that does not make it a matter for public policy. If the government wanted banks to lend more to keep them in office, then their executives should have been rewarded for doing the government's bidding.

But we also know that the bonus culture and the obscene amounts of money involved, arise not because of short termism per se, but because of what it is they are trading in - they have long had massive bonuses based not on what the real economy is doing but on the massive volumes of "our money" that passes through the city every day. Some people look to the likes of George Soros for a way out of this - actually it's things like his trading in vast unfathomable volumes of money that create this bonus culture.

Like estate agents, if part of your earnings are based on the commission you earn by your deals, when you are trading daily in over a trillion dollars worth of currency (as has been going on for two decades) then even the smallest percentage of commission is going to be pretty impressive. Market makers will claim that such volumes, unrelated as they are to the money moving needs of the real economy (foreign currency transactions for business requirements for example are a small percentage of daily turnover in those markets), are necessary in the way the market finds the correct price for any commodity.

Yes, the figures sound gross, but they are so gross because the commodity they are dealing in - they have a very privileged position in being able to create, manipulate and move vast sums of effectively fictitious money around - is one which we collectively underwrite for them - our currencies. The problem is the very basis on which the system works, not the rewards for playing that system. We forget at our peril the words of Winston Churchill in the 1909 debates that we should not be attacking the people who play the system we support but the system itself. None of this motion attacks the system itself - the way we create money.

And so the remedies offered by this motion amount to little more than the palm court orchestra playing on while the ship sinks...

Conference believes that:

i) The failure of government and the regulatory agencies to take action flowed particularly from an attachment to the principle that financial markets and actors in them should be subject to as little regulation as possible, which became known as ‘light touch regulation', and generally from an erroneous belief that free markets will always produce the best outcomes for producers, consumers and society as a whole.

No, the failure of government to take action arises from the fact that the powerful, politically and financially, are the only ones actually to benefit from the corrupt money system we have. Inflation helps government conceal their profligacy and fiscal failures by revaluing their debts downwards. The system, as we have seen, allows them to try to manipulate markets for political ends - in this case saving Labour's skin in 2001 by borrowing our way to avoiding a recession.

ii) These principles and beliefs, as shown by the events in late 2008, were flawed in that they led to the privatisation of profit and the socialisation of risk, such that incomes of individuals and institutions in the financial sector soared whilst business and individuals in the wider economy were exposed to high risks of financial harm in the event of failings and defaults in the financial sector.

This one contains a grain of truth which is then lost - the "privatisation of profit and the socialisation of risk" is precisely and undeniably what John D Rockerfeller Jnr and J P Morgan Jnr (notice who gave T Blair his first post-premiership contract) persuaded teh state to collude in with them in the formation of the central banking system we have today. When will we realize that it was constructed by the rich and powerful for the rich and powerful and there is no earthly reason why the money system we have now should be the only one we consider. The nature of money has changed throughout human history and the current crisis should be seen as the death of this particular incarnation.

iii) Events in late 2008 and the role of the financial sector in producing them highlight the need to reform radically the financial sector.

..or highlight the need to reform the money system - anything less is tinkering, and not radical at all.

iv) Far from retreating, the state will need to intervene to ensure effective regulation of financial markets in order to promote stability, counter short-termism and protect the interests of business and consumers.

The interests of business and consumers are fundamentally opposed to the interests of the monetary authorities and politicians in this respect though. What we need for sound business decisions and sound savings and investment is a sound currency. The rich and powerful need a money system they can manipulate, which is the opposite of sound money.

v) Incentives within the financial sector should be better aligned with the broader goal of building a fairer society.

In a free money system the financial institutions would only be able to make a profit if they were contributing to fair and free trade. Since the money system is anything but fair and free trade, but a state regulated and protected oligarchy one wonders whether politicians will ever countenance the reforms needed unless we do allow this to go spectacularly bust.

Conference therefore calls for a reconstitution of financial regulation so that:

a) Financial institutions and their staff are discouraged from excessive short-term risk taking, for example though remuneration policies which reward only long-term success and which ensure that those whose actions are harmful or cause loss bear the consequences of their actions.

...or by governments not telling them to take on riskier debt in order to bale them out of an electorally damaging recession.

b) Financial institutions make credit and investment available on reasonable terms to businesses and individuals in the wider economy.

...which would still be happening if governments had not run up the flag of irresponsibility by asking them to make lending artificially cheaper.

c) ‘Intermediate' financial institutions, such as hedge funds and private equity vehicles, are properly and effectively regulated and in particular are required to be transparent.

...or how to ensure the City of London never recovers. Most of these are simply "investors". Professional investors to be sure. But if we regulate them they'll just start spending their days on the beach in sunnier climes than ours with a laptop and a phone to their brokers. Furthermore, the level of regulation already in existence means that for good ideas to get capital they tend to need these venture capital style sophisticated investors. Get rid of them and our economy potentially will never recover because the adventurous investors willing to take a punt on a business idea will evaporate.

Conference also calls for:

1. The encouragement, support and promotion of credit unions and other kinds of mutual financial organisation.

2. The government and financial regulators to work for more decentralised banking institutions and a localised financial infrastructure.

Neither of these are achievable through more regulation. I should know, I've been trying to set up local, mutual financing mechanisms and the weight of regulation is such a barrier to entry that it is next to impossible unless you are already very wealthy and are allowed (which c. above would probably prevent) to invest freely as a sophisticated investor.

3. Improved access to financial services thorough the Post Office network.

...yadda, yadda, yadda...just more posturing for the Focus leaflets.

4. Free and independent financial advice to be made available to those on low incomes.

With a system of competing currencies in a free market it would be likely the responsible financial institutions intent on gaining and keeping customers would provide such services. In an economic landscape that was more favourable to the less well off, by eradicating rent and interest, this would be less necessary in any case. People are quite sophisticated you know - it is quite patronizing to think otherwise. The "grey economy" testifies to that.

5. A statutory duty to be imposed on all lenders to lend responsibly, giving borrowers a statutory right of action in cases where there has been irresponsible lending.

See - the state intervenes again. What's wrong with contract? And above all, banks responsible for their own fortunes via their own circulating currencies, would have every incentive to ensure they did not take on dubious assets - irresponsible loans. But for the state to start deciding what is or is not responsible (as Gordon Brown has this past couple of weeks with his railing against 100% mortgages) is hardly a liberal response. It is a statist response.

6. Consumer protection to be strengthened with stronger penalties for those who mis-sell financial products using aggressive selling practices; with a statutory maximum interest rate to protect vulnerable groups from predatory loan sharks and doorstep lending.

...yeah - and I'll bet the people who dreamed up this motion wouldn't hesitate to support Mohammad Yunus and his micro-credit system.

No doubt this motion was received with some rapture amongst the faithful at Conference. If so, it is in my opinion a disaster for the party and the country. We keep shying away from this once in a lifetime opportunity to argue for real, radical change, for liberal policies and we return to state regulation and protection. I am beginning to get ashamed of my membership card!

I've been trying to get people to hear this for years now: that the huge advances already made in information and communication technology and in the speed and availability of travel are epoch changing. And there have been a few stories over the past weeks and even just in recent days that have confirmed for me that we are finally in the "last days" of the twentieth century in terms of the way we do so many things we have come to rely on.

Some may call what we are witnessing a Kondratiev Wave of immense proportions, asset bubbles, a global failure of risk management, the convergence of peoples now able to communicate instantly across the globe with half of the rest of the world's population, a concern about civil liberties and, in a much more interconnected world about how others see us and what they want to do to us if they don't like what they see.

And, as I have also said previously, this is an opportunity for far reaching liberalization of the world - remember Cobden's quote at the top of my page: "Peace will come to earth when the people have more to do with each other and governments less." Now we have the ability to have more to do with each other and need our governments less to do so for us we could realize that hope. Or, on the other hand, it could be an excuse for a slide into dark totalitarianism as governments seek desperately to hold onto the power to which they have become accustomed; and perhaps worse, seek to control the new global world in the same way and clash more fiercely with each other when they disagree.

Why do I say this now? What are the signals that we need to change things one way or another? Well, take a look at the Guardian's Corporate Tax Avoidance campaign for starters. This is something I predicted long ago - one of the most liberating things about the new world is that people can move, physically or just their economic interests, around the world almost instantly. This used to be the preserve of the very wealthy and well advised. But there's no reason nowadays why relatively modestly financially endowed people cannot do much the same. In response to the Guardian's campaign people have been screaming about the need to tighten up on this sort of thing - even St Vince has been at it.

This is dangerous, for it requires close co-operation between states into our personal affairs not seen before. Think of it - forty years ago each schedule in your UK tax return would have been dealt with by a different civil servant so no one person would know precisely your whole financial circumstances. Now we are asking whole countries to share data between them. It is economically counterproductive too. Tax competition is an important brake on state profligacy. It is right that one of the means of registering an objection to one country's over-taxing is to move your affairs, if the recipient country is willing, to somewhere that is not so profligate. The evidence of the last decade should be enough to show the multifarious, and nefarious, ways in which a determined state can take more tax whilst simpering that they are not raising headline rates. The common, international, policeman of tax competition seems to be able to do economically what governments are incapable of politically.

Similarly currencies - our 95-odd year flirtation with a monetary system invented effectively especially for the rich and powerful banks like J P Morgan and J D Rockerfeller looks to be collapsing. And rightly so. It cannot be right that banks are able to take on vast international liabilities in far huger volumes of a country's currency than that country can possibly guarantee, and yet we are seeing our politicians effectively writing what are potentially vast, bankrupting, blank cheques because of that system. Not only was this very system of money invested to benefit the rich and those with access to the largesse of governments but it is now being propped up, albeit in our name, essentially to the benefit of the same people and to the disbenefit of the vast majority.

And with "civil liberties" - this, to me is the crucial one, because it is a cause celebre for many, but may of those do not see, or if they do see don't want to embrace, the idea that civil liberties cover both social and economic aspects of our lives. For those who want on the one hand to fight for tougher tax enforcement against one group yet against, say an ID database or the widespread collection and sharing of personal data, they have a problem. That data is made even more necessary by their own wishes to see everyone tracked down so that they "pay their way", or don't get what they're not entitled to. And those pressures are set to become even stronger as the mechanisms that allow us, physically or virtually, to hide our affairs from governments become easier and more widely available.

Libertarians believe there is a solution. Most of us, not just libertarians, recognize there's something wrong with "monopoly". Where we differ is that libertarians tend to see the state as not just a monopoly itself but the mother of all monopolies. A true conglomerate of monopolies with a whole plethora of arbitrary power. Others believe that state monopoly can itself be controlled by the thing we call "democracy". But, as I said previously - show me an example where the problems we are now in are not already supposedly in the hands of a democratically elected body. A democratically elected body that gave in to Rockerfeller and Morgan nearly a century ago and forced us all to accept their monopoly solution say. A democratically elected body that thinks ID cards are necessary the more efficiently to transform the management of government. And so on.

On the other hand, to libertarians (or at least some of them) I would say that you need to realize that some of your often heart-felt policies cause quasi monopolistic structures - such as with the relatively recent, in libertarian history at least, fixation with an allodial system of ownership of the planet's natural resources - especially "land".

For me, there is no doubt in my mind that liberty is indivisible - you cannot have "social liberty" without also having "economic liberty" and those who seem to try to split the two are doomed to failure, or even worse - encouraging states into that dark descent to totalitarianism by continuing to grant them the monopolistic and arbitrary powers to prosecute one type of freedom. Equally, a more securely philosophically rooted understanding of sharing our earth would enable libertarians to promote a system that was both free and fair and equitable, without a monopolistic state. If these positions can be reconciled...I'll feel fine, as REM said!

Money is not wealth. Wealth only exists in real things that people produce and you consume, or more properly take pleasure in owning. Unless you are a very sad person whose pleasure is in counting and admiring a pile of bits of crinkly notes, money is only valuable insofar as it allows the person who has it to buy things, goods or services that add to their store of wealth.

For most people, money is just a unit of accounting that tells them they have sold their labour (or something else) for a certain amount of wealth’s worth that they can use later to buy some real wealth. It gets over the problem of so called “coincidence of demand” – that at the time you sell your labour or goods you may not in that instant want something the person buying it from you has to offer.

In a world of uncertainty, it is prudent, if we are able to, most of the time at least, to hold a little bit of money in reserve so that we can eke it out and survive if for some reason we are unable to get more of it before we need to pay our bills, buy more food and otherwise fulfil the basic needs of life. That’s just what prudent companies do to ensure they can pay you every month and buy things to sell before you come along to buy them.

But really “saving”, putting something away for that ever-looming “rainy day”, is where money (“cash”) falls down as an asset class. And in doing so it does immense damage to us all – our financial fortunes, our environment, our society.

In the context of establishing our idea of a “Community Finance Partnership” a friend and I have been reading up on various community finance networks that sprung up at the time of the Great Depression. And I believe I have finally had an epiphany in my understanding of “usury”.

Many of the groups and systems I have been looking at, formed during the Depression to help make up for the lack of circulating currency which was making a bad situation worse, worked on the understanding that charging or paying interest was itself the major problem that had led to the “credit crunch” of the time.

Interest bearing cash tries to turn money from being a means of exchange and unit of account into something fundamentally different – a store of value. It encourages the hoarding of cash balances, which are then not available to be spent in the real productive economy.

The charging of interest on loans means that the borrower has to acquire more money than they borrowed in order to pay off the principal and the interest. We have a tiny amount of non-interest bearing “money” in our system. In the UK, prior at least to the recent troubles, this amounted to only about £50bn – in the form of issued notes and coins. All the other purchasing power in our accounts was created as interest bearing debt and so over 97% of our purchasing power needs repaying at some point, with interest.

The JAK bank in Sweden, which has its origins in a similar Depression-era Danish venture, calculates that up to between 30% and 40% of everything we spend goes on paying this embedded interest committed to by all the borrowers in the supply chain of the goods and services we are purchasing and have been created in the past. This represents a huge transfer of wealth from those who have little, to those who own the financial institutions that create this debt-based purchasing power.

In such a system also, inflation is virtually guaranteed, as it helps those in debt (most often governments telling us they are acting in our name) reduce the value of their debt by reducing the purchasing power of those who hold current purchasing power unencumbered by debt. This is a transfer of wealth from those prudent enough to operate within their means to those who don’t.

It is a vicious cycle at the centre of our economic lives that allows the rich and powerful, including states and bankers, to manipulate our purchasing power for their ends rather than ours. If we did not have to finance this 30-40% embedded interest then, not only would our purchasing power hold its value better, but we’d have 30-40% more of it, for the same amount of labour sold, with which to purchase real wealth and get closer to financial independence.

Money is a human creation, and the way it operates can be changed by human intervention. If we do not change it now, in the process of rebuilding the financial system that has just crashed, we are doomed, absolutely inevitably, to repeat this crisis in the future. And we should not be afraid to demand such change. After all, it affects the vast majority of us negatively at the moment and only benefits a tiny minority. It is a test of our democracy if you like that we must rebuild the system in a way that works for the majority rather than against the majoroity.

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.

In my last post I set out what I considered to be the three necessary reforms to create a more equitable society - Land Value Tax (or "The Single Tax"), Citizen's Income and Ownership for All.

In the comments, Tim Carpenter, Head of Policy at the Libertarian Party UK had several objections that I would like to address:

Tim: "LVT can seem fine and dandy at the first off, but over time who decides the future value of your land?"

Why does anyone need to decide the future value of your land? In any case, even if that were necessary the market does that anyway even at present - what people pay for a property reflects their view of what it's worth into the future - they are, literally paying up front, to the previous owner, the rent for a number of years into the future. I agree there are issues with a "100% Land Tax" where the community attempts to collect 100% of the rent (as I and other geo-libertarians would advocate). This would make the capital land value tend toward zero and how would you know whether it's moving up or down over time? Well, the answer I believe is that it would trade at a discount or premium reflecting the buyer's and seller's view of whether the "passing rent" (ie the LVT bill) was set too high or too low.

Tim: "It is fraught with risks, opportunities for corruption and chaos. If you think compulsory purchase was bad..."

As I understand it several of the big RICS member firms have discussed this and have proposed a valuation regime that they would be comfortable bidding for and would expect to be able to handle things like appeals. The Oxfordshire pilot study showed that on average there was only a need to value about one site in ten - ie that that many nearby sites would share the same land value. And there are developing ever more sophisticated data and models for modelling things like "landvaluescape" and how it changes in reaction to things like new infrastructure.

I only don't believe it is as daunting a task as taxing incomes in the multitude of ways we currently do.

Tim: "If CBI is only half what is needed to live on, then surely we will still need welfare."

The Joseph Rowntree report I mentioned included a lot of things that go much further than the "basics needed to survive" (and the headline figure of £13,400 was "pre-tax". Not that I claim that would halve the bill. However the removal of the deadweight loss created by the other taxes that would be repealed, and the ending of subsidies, particularly on agricultural land and other tariffs on the necessities of life would make them cheaper. Two ways to be wealthier - have more money or make everything you need cheaper. As Frank Gallagher in "Shameless" says "Make poverty history; cheaper drugs now!"

Tim: "Removing the minimum wage is fine but be under no illusion, the CBI will be factored into that wage (or lack of)."

But, first, they would also be factoring in the lack of payroll taxes and income taxes - they'd have nearly 40% more in their "wage bill" to play with in many cases. Second, the CBI has two purposes in my mind - one of them is to give people enough to survive, just, day to day, but the intentional beneficial effect of that is that people have a cushion that empowers them to say "no" to a coercive deal from an employer. If the marginal benefit from working x hours for y pay is not worth it and you know you can survive until you get another, hopefully better, offer, this changes the balance of power between employer and employee. And, because it is the same for all workers, and not just the ones currently stuck in the benefits trap, the employers are more likely to have to listen and produce decent remuneration. Though I do concede that there would be hundreds of thousands of currently civil servants in the job market to depress wages...:)

Tim: "It will be no solution to poverty AFAICT and your assertion that it would eradicate x y or x is not explained. I think parish provision is an interesting one, but frankly, look at places like S Wales and you will find that parishes will have little or no wealth creation so no money to spend on their army of dependants - central funding will be needed in precisely the places where people say it causes problems of unconditionality - for once the parish is spending other peoples' money the problems are right back with you again."

However, the LVT is more likely to move economic activity to areas where companies, and employees, and therefore also companies as employers, will pay less tax, which is turn will raise the economic activity in poorer areas and tend to level out regional disparities of economic activity. It cannot be any worse than the current situation where some regional economies make up more than half of their regional GDP from state handouts and subsidies to individuals and businesses.

Tim: "As another person has mentioned, the mutualist company can occur NOW. What is to change here? The fact that it does not happen now should either make you ask what stops it legally/financially or regulatory OR that it is actually a factor of how humans are socially, in that it takes certain individuals the gumption to kick start a company (and that is NEVER to be underetimated) and once they do so, why would they then let a whole load of strangers take just as much out of it as he/she does?"

I certainly don't underestimate the setting up of a company. I have been an employer for precisely one month in my life and it was a bloody nightmare. But it would certainly be less troublesome if I was not burdened with all those damn tax calculations! But again, I refer the honorable gentleman to the answer I gave a moment ago - the "cushion" that empowers the employee to say "no" a bit more; to hold out for a better share of the total returns to a business. This of course goes to the core of mutualism as I see it, as opposed to the anarcho-capitalist type of libertarianism. Mutualists believe that the current capitalist system is lop-sided, "toxic" and that it is itself a coercive and damagingly hierarchical system. Empowering labour to hold out for a better deal, making use of new corporate forms like limited liability partnerships and so on, will accelerate this change.

...and finally...

Tim: "Monetary reform and changes to fiat issuance will not happen by itself. The problem is coming up with something to replace it that actually works. I have seen many attempts and none appear to work or are just a cover operation for hatstand ideas like "social credit"."

As I think I said in response to another comment, I'm actually quite agnostic about how monetary reform should happen and what direction it should take. Personally I like the Hayek idea of fully privatised commercially competing currencies. I am told that the legislation actually already exists to allow commercial "complementary" currencies run by corporations. Air miles, Nectar and Kit-Kash are but early examples.

But consider this - if you collect 100% land rent and the capital value of land falls towards zero, the structure of the money system is bound to change - a large proportion of our broad money is lent into existence to pay for land in the form of mortgages. At the very least banks are going to need to have to adjust to that.

Actually I believe the real question is what lengths states will go to to prevent what I see as inevitable change if we allowed it. I haven't played there for a long time, and the hype about it seems to have died down a lot, but "Second Life" and "Kiva" are but a glimpse of what might be to come.