economic liberalism

Now lots of people baulk at a perceived notion that libertarianism is fixated on private property.  They feel that it is indicative of an incessant right wing-ish obsession with accumulation of wealth and devil take the hind-most (who will, obviously, they assume, have no such private property: wrongly of course - for we want everyone to be able to accumulate enough property to enable them to gain financial security and so on).

In fact of course the statement in the title, "property is freedom", comes from Pierre-Joseph Proudhon, with whom most people associate a. anarchism (which many seem to think of as somehow not "right wing-ish" - if libertarianism is "right wing-ish" - which it is not but never mind; I don't want to get into a left-right debate here), and b. the more famous dictum that "property is theft".

And it struck me the other day, while listening again to Murray Rothbard's "For a New Liberty" (of which you can listen to an excellent free audiobook version in individual chapters at the Mises Institute), that actually the really important thing about property and why it occupies such an important place in libertarian is little to do with material wealth accumulation.

Actually it's two big reasons, the first of which I don't really want to get into here - that private property, as opposed to communal property in particular, creates the right sort of economic incentives for individuals to want to work to support themselves and keep their property in good order - if they get to keep the product of their efforts, the property which results, they are incentivised to do well. 

But it is the second big reason that I want to highlight now in the context of "property is freedom":  respect for private property rights and the voluntary contracts that give rise to them is key to eradicating the state's (often contradictory) interference through legislation.

Take, for example, the right to free speech.  A right in theory at least at the very root of liberalism - for if you cannot be free with your thoughts, and with expressing them in speech or publication, is not the state constraining your very being?  But we've all heard, and many accept, the idea that there must be some kind of "limit" on free speech, such as not being allowed to yell "Fire!" in a crowded theatre because of the harm that may cause to panicking patrons.  Well, libertarians do not need such a contradictory limitation; because of our respect for property and contract.

To yell "Fire!" in that crowded theatre is a breach of contract of the basis and conditions on which you and the other patrons are permitted in that theatre by the owner - to watch a performance.  Any harm caused by your actions will either be breaches of their contracts, or damage to their property, and properly actionable through private actions on their behalf.

By the way, you can hear more about the "Person who yells "Fire!" in a crowded theatre" from Walter Block's book, "Defending the Undefendable", also at the Mises Institute.

Many think that anarchy means a complete lack of order, or a lawless world in which the vulnerable for whatever reason will be preyed upon by all those vicious racists, homophobes or whomever that we have created many dubious restrictions on free speech to curtail.  But let's say I own a particular street, I charge my customers for using the street, and they, in turn expect me to provide a safe environment for them to traverse.  So I get to set the rules; the protection agency contracted by my insurance firm makes sure everyone feels safe, ,is not intimidated by racist thugs or whatever.  After all, I may be liable to my customers if they are hurt while in my care, on my property.

Proudhon called all these associations developing civil society "spontaneous order", driven not by what a few people who solicit your votes every so often want, but by you and everyone else going about the myriad of transactions of your every day lives.

Oh, and while I'm at it, I'd probably want to make sure my street was gritted and safe for my customers in the snow too, maybe even get a few more customers if other street owners didn't bother so much.  I can't say my local authority is a "customer focused street owner" at the moment, can you?  It is because of respect for property and contract that all this can happen and, just as important when compared with the state's way of doing things, that the money flows to the services that people actually need, because, well, they're paying for it and can demand what they've paid for.

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Thanks to Stephen Glenn for pointing me to this lovely new descriptive word for the supermarket giants, and to the Lib Dem media release website for highlighting this issue via Tim Farron.  But I'm afraid unlike Stephen or Tim I cannot actually see just in what way the Lib Dems have any better policies than the other two vacuous parties on the issue of how to protect our farmers from exploitation by the supermarket oligrarchy, or, as the title says, the "trolleygarchy".

What I do see is all three parties falling over themselves to think of new things for the state to do to address some perceived problem that even the Competition Commission seems to have suggested was not such a big issue.  But I suppose it was a farming conference so they're bound to have been wanting to promise these potential voters that they would each do something to defend their interests in return for their earth salted votes - such is what politicians do.

But it provides a useful example as to what the real, liberal, process should be to such issues.  Why on earth are we, or anyone else, calling for more regulation, more bureaucracy, more costs?  Why don't we look at how this market got to this position?  At the state's role previously and now, in disadvantaging one group and protecting the other.  And see whether there are things the state should stop doing to make this a fairer market rather than creating another state bureaucracy to try and fix problems still being created by state action?

For on both the demand and the supply side of the market for this most basic of commodities, the food that keeps us all alive, we find a trail of evidence leading back to state action that has made it ever more likely that these giant retailers would emerge in the first place and dominate from then.  Not that I am saying that big is necessarily bad of course - if they are delivering what consumers want at the right price and quality, they could have a monopoly for all I care, so long as there are no barriers for others to enter the market should they see that efficiency slip and see a way of doing better for the consumer. 

But they have had help in achieving that dominance.  There's a huge amount of food regulation that, inevitably, the bigger firm is better placed to meet, and not just to meet, but to lobby regulators to suit them too.  On the demand side, state mismanagement of everything from money supply to housing markets has resulted in a vanishingly small number of households now being able to house themselves on one income, and so hard pressed home-makers juggling jobs and home life demand more convenience foods.  No longer is a leisurely trip to a local market for raw ingredients, freshness and quality decided by eye, nose and trust in the local man or woman behind the counter, followed by an hour by the stove and time to feed the family all at once the familiar way of doing things.  So there is more demand for, and thence regulation of, more conveniently packaged and ready-prepared food - ever more ranges to stock; ever larger stores to accommodate them.

On the supply side, we caved into the EU some years ago now in losing most of our local abattoirs, so farmers are more likely to have to sell into a mass market with smaller margins than be able to sell more locally with fewer middle-men taking a cut.  The fact that we do not charge for road use means that there are benefits of scale in moving food in huge quantities around the country, again meaning you are less likely to sell direct to local retailers, but through buying groups that aggregate whole regional and even national production and put pressure on prices.  This same factor means we are happier jumping in the car and traveling ten miles to a superstore than patronising local stores in a local supply chain - and those out of town stores are not fairly taxed on their land use, as they can offer massive free car parks with no rates on them.

As premium produce tends to be more labour intensive, our tax system, based on employment, creates big disincentives in an already narrow margin industry to employing those extra people and getting better prices for premium goods.  And on the retail side, low skill jobs that sometimes probably would not be worth the minimum wage to smaller retailers can be better afforded by big operators offering shift work and annualised hours to enable them to operate when family owned retailers would all want to be in bed because their overheads for waiting up for one romantic couple in aisle three at three in the morning are just too high.

So, whilst it is obvious that this is all a lot more complicated that merely being about defending the farmer against the trolleygarchy, it should also be quite clear that the trail of blame as often as not lies in earlier and ongoing state action that helps protect the big retailers and squeeze the farmers - we have not even looked at the history of land subsidy (how do farmers expect to make money out of things that only a few years ago, relatively speaking, we kept lakes and mountains of across Europe?).  Instead of having yet more bureaucracy and regulation, the liberal response should be to look at where the market is already heavily skewed by state action and stop doing it!

Employment regulation, food laws and "consumer protection" (once it was enough to ensure that the meat wasn't green and smelly when you bought it, now it all expires days or weeks before it would actually be unfit and so in thrown out), transport policy, taxation policy, the openness of our political system to lobbying for favours - always benefiting the bigger players, all these need looking at before another layer of regulatory bollocks is imposed.

But has anyone spotted the little irony - that one of the biggest retailers the farmers are complaining about, ASDA, was once a farmers' collective, and their last Chief Executive was also a Tory MP!

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In the run up to 1997, I remember that one somewhat better, the Iron Lady was gone, love her or hate her, and the Tory government had become mired in "sleaze" and policy-wise had run out of steam, full of the second division of ministers that had emerged under Thatcher. Tony Blair and his New Labour project was another "Big Idea" whose time had come. Labour without the socialism. Economically responsible. With a plan.

And so we've had Thatcherism and Blairism over that past thirty years. But I think we will not get Brownism or Cameronism. Now, even moreso than in 1979, and certainly moreso than in 1997, we need a "Big Idea". Not merely a change of management. And, for all the coverage, I cannot see any "Big Idea" coming out of Old Queen Street. To prove their management credentials, they present, at their big show case conference before likely victory, a managerial mock-budget. Talk of freezing public sector pay, of everyone working for an extra year before retirement; these are not going to solve the terminal systemic problems in the anglo-saxon pensions system or the bloated state, unable to sap any more out of a shattered and second class productive economy.

And today's "Big Idea" ought to be not looking at how the State can be tweaked here and there or managed differently, but to look at the very nature of the State itself. As I quoted Albert Jay Nock in me previous post, here he is again, also from "Our Enemy The State":

The condition of public affairs in all countries, notably in our own, has done more than bring under review the mere current practice of politics, the character and quality of representative politicians, and the relative merits of this-or- that form or mode of government. It has served to suggest attention to the one institution whereof all these forms or modes are but the several, and, from the theoretical point of view, indifferent, manifestations. It suggests that finality does not lie with consideration of species, but of genus; it does not lie with consideration of the characteristic marks that differentiate the republican State, monocratic State, constitutional, collectivist, totalitarian, itlerian, Bolshevist, what you will. It lies with consideration of the State itself.

[...]

It appears to me that with the depletion of social power going on at the rate it is, the State-citizen should look very closely into the essential nature of the institution that is bringing it about. He should ask himself whether he has a theory of the State, and if so, whether he can assure himself that history supports it. He will not find this a matter that can be settled off-hand; it needs a good deal of investigation, and a stiff exercise of reflective thought. He should ask, in the first place, how the State originated, and why; it must have come about somehow, and for some purpose. This seems an extremely easy question to answer, but he will not find it so. Then he should ask what it is that history exhibits continuously as the State’s primary function. Then, whether he finds that “the State” and “government” are strictly synonymous terms; he uses them as such, but are they? Are there any invariable characteristic marks that differentiate the institution of government from the institution of the State? Then finally he should decide whether, by the testimony of history, the State is to be regarded as, in essence, a social or an anti-social institution?

Nock, of course, concludes as I too conclude; that the State is an anti-social institution - the enemy of social power that it unremittingly destroys. And so the "Big Idea" for today is, in fact a "socialist" revolution. A complete reversal of the centuries' old process of State power usurping Social power and never giving it back. Not the "socialism" corrupted by the coercive statist tendencies of the twentieth century "left", or of the "social democratic" tendency. But the confidence that social power can achieve what the do-gooders believe their states can do only much better.

It is an irony that in our own party what we think of and term "social liberalism" reflects a belief that the state should help liberalism flourish by its supposedly judicious interventions. For true "social liberalism" ought to be the belief, expressed by Nock, or Thomas Paine or Thomas Jefferson, Pierre-Joseph Proudhon or Gustav de Molinari that through genuine liberalism social power does not need the coercive state.

As David Boaz puts it in his "Libertarianism: A Primer":

The right term for the advocates of civil society and free markets is arguably socialist. Thomas Paine distinguished between society and government, and the libertarian writer Albert Jay Nock summed up all the things that people do voluntarily--for love or charity or profit--as "social power," which is always being threatened by the encroachment of State power. So we might say that those who advocate social power are socialists, while those who support State power are statists.

State Power is created by conquest and confiscation. From what Paine described as the "French bastard landing with an armed Banditti and establishing himself king of England against the consent of the natives" the state has exploited. It was no less exploitative from the seventeenth century Commonwealth's installation of mercantilist power - merely a different group was exploited. Nor, for all the talk that the universal franchise was the zenith of democratic achievement, has that exploitation ceased just because everyone now has a theoretical say - again, just another group, or groups, exploited from time to time. State power is the true "opium of the masses" with its ability to whisper softly, intoxicatingly to us that "the State will provide".

For those managerial politicians, those would be state exploiters, who cannot get away from their amateur management-speak, what we need is to "zero base" the state. For the state is no defier of the laws of the universe: for every state action there is an automatic and most likely undesirable reaction. It is state created privilege that enables some to exploit others' natural competitiveness in the market. And then the state says it needs to intervene and "redistribute" what would be more naturally distributed if that privilege had not been granted in the first place: more coercion, more exploitation, more state power. Every intervention of the state needs to be examined for the usually detrimental effects it has elsewhere and which it then claims as reason to usurp yet more social power to fix.

And we will find, invariably, that left well alone, without the depredations of the state in the first place, social power would have worked better. Social power, the power of all the associations we make one with another, even the ones we don't know about, such as my relationship with the forger of the brass ferrule in Leonard Read's "Pencil" whom I cannot know, is the only thing that can end this spiral of managerial, coercive, exploitative and ultimately futile statism. And its resurgence needs to start now, before George and Dave, and all that seek to come after them, manage to destroy it utterly. And with our now massively increased ability, through modern technology and communication, to organize for ourselves, for "people [to] have more to do with each other and governments less" there has never been a better time than now.

Socialism: it's not what you think!

It seems I might be a wee bit out on a limb here - a familiar position it has to be said; but this leopard (out on his limb you see) is not going to change his spots.

It seems colleagues from around the Lib Dems, including folks from ALTER, and also land tax campaigners from outside the party seem to think the so called "Mansion Tax" announced at Conference the other day, in which residential properties worth more than a million pounds will attract a new half pence in the pound property tax, is "A Good Thing" or a "Step In The Right Direction". I absolutely disagree.

I'll go further: I think it is "A Bad Thing" and a "Step In The Wrong Direction". It threatens to undermine a broader implementation of a proper land tax. It raises very little, by way of a tax deliberately targeted on a particular group of people; a group of people who have considerable clout, in the main, and who have already shown, through the successful agitation of a similar group in getting Tory policy on Inheritance Tax changed, to whip up the fear of an "envy tax" amongst people unlikely ever to fall under its regime.

It combines everything we know to be bad about the Council Tax with none of what we promote as good about Land Value Tax. It sends precisely the wrong signals about land tax - that it is about raising a bit more revenue, not creating a new fiscal system where tax can be used to benefit directly the least well off (in the case of the land taxes by reducing markedly their costs of maintaining a basic living in the form of their shelter).

It seems to me that it is primarily aimed at sating the desire for a particular type of modern liberal to hammer the wealthy in order to "redistribute" to the less well off, rather than to create a genuinely more equitable system in which taxation is transparent, applied as far as possible to everyone of a similar class - ie land owners or income earners and so on.

The greatest benefits of land taxes can only be gained when land taxes are applied to the sort of land that those of us struggling to find a home need to be cheaper - which means taxing all land. If we cannot show these benefits, and quickly, then the arguments for land taxes will go stale before the benefits are apparent, and this sort of measure will foreshorten that process.

Also at conference, ALTER published their long awaited book of essays on the benefits and effects of land taxes. For those who read it, I cannot imagine that they would not conclude that land taxes are, in fact a "no brainer". We should get on and do it, or not at all. Not trifle around with a measure that will act to galvanize opposition to "any idea of a property tax coming out of the Lib Dems". In his foreword to the book Vince Cable says that, in contrast to 1909 we now need to know precisely what it is we want to implement and have a plan for doing so.

The "Mansion Tax" is part of neither.

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The debate in the US over the merits of socialized medicine appears to be being successfully portrayed in the rest of the world as the great majority forces of light and twentieth century social liberal ideals of care for all against a tiny minority of the forces of darkness, right wing nut-jobs who really want an agonizing death for anyone without the savings to be able to buy a heart for transplant from some Indian street urchins.

Comparisons on both sides are being made with the NHS and the Canadian systems, with the pro-Obama opinion pointing out the benefits of cradle to grave free at the point of access health care equal for all, and the anti-socialized medicine opinion pointing out the queues, the lack of choice, the fact that some people die because an available treatment is not permitted on several grounds and the total overall cost.

For those of us not politically active in the UK in the 1940s it should be a fascinating debate (if it weren't being so hideously caricatured on both sides). Because more or less ever since the National Health Service Act was passed in 1948 it seems to me that nobody has seriously challenged the NHS model, seen as it is with great "affection" as the mainstay of our post-war "enlightened" caring society. On this side of the Atlantic it seems the majority of any opinion being expressed is along the lines of cheering and celebration that what we have had for sixty years finally America is going to get and propel them into that enlightened caring society at last.

But we should take the debate much more seriously, for when the critics of socialized medicine make their case, they are, in effect, making the case against our NHS as well - highlighting potential failings that we no longer even bother looking for. First off, we should understand that the opposition is itself two separate oppositions.

In the one corner are the beneficiaries of the current, and admittedly badly broken in my opinion, system of HMO's, big pharma, heavy regulation and legal (both state and federal) protectionism that makes a few organizations and individual very wealthy but actively prevents the sort of health care we would want to see everyone able to access. But I suspect that these folk are not the sort of people many who would want to see big change in health care provision here would support.

In the other corner, and with a far more honest, sincere and coherent critique, are those who recognize that the current system is deeply flawed, expensive and exclusive, but that that is itself caused by state interference, and that actually nationalizing that system will end up even more expensive for all (though of course hidden in government rather than household or company budgets), and entrench the sort of rationing culture that is now so evident in our own NHS. The message from these people is that the solution is not to throw more regulation, more money and more centralized control at the problem, but radically to reduce the red tape and protectionist regulations at all levels - to reduce the grip of big pharma and of lobby groups, of professional accreditation bodies in whose members' interests it is to keep health care resources scarce and therefore lucrative.

And this is the side I am on. I do not want to see the NHS broken apart and true competition introduced into UK healthcare because I want to end the idea of care for all, but because as a monopoly with more or less centralized control and hence no real measures of cost effectiveness together with the fact that it is financed by taxes - a mechanism that is inherently unable to allocate resources efficiently - it is more expensive, less flexible and more exclusive than the alternatives. Bevan was reputed to have said when asked what he would do if doctors refused to join the new scheme in 1948 that he would "stuff their mouths with gold": a prediction that has embedded huge levels of economic rent in the medical professions ever since.

And so, I commend to you this piece, "Health Care: An Anarchist Approach" by Gary Chartier at the Centre for a Stateless Society which sums up well the argument of those of us, like myself, who want the state out of these sort of essential goods precisely because all they ever do is screw it all up and make things more expensive. Please go read the whole lot, but I will end with his bullet point recommendations. We still need to have this debate here.

A Sensible Policy Agenda

Bottom line: the thing government officials could do to reduce health care costs would be to get out of the way. They could:

1. Stop offering protection to patents and copyrights.
2. Eliminate hospital accrediting and professional licensing rules, leaving a variety of flexible, competing market-based certification systems to do the job..
3. Limit malpractice awards to actual damages plus the costs of recovery (including reasonable legal fees)
4. Repeal regulations that prevent the sale of insurance across state lines and the prevent the operation of what amount to insurance schemes by health professionals.
5. Alter the tax code to de-link employment and insurance. (This change would have the potential to boost net taxes, of course, if it weren’t made in tandem with the tax cuts for which I’ve argued.)
6. Replace the FDA approval process with competitive private certification systems.

And government officials could also ensure that ordinary people had the resources needed to pay for (newly much less expensive) health care. They could:

1. Eliminate licensing, zoning, and related restrictions that help people from starting small, low-capital businesses.
2. Eliminate rules that prevent poor people from entering business regarded as off-limits (like selling non-approved pharmaceuticals—which could, again, be certified by competitive, voluntary, market-based certification services).
3. Eliminate rules that force poor people to choose between the kind of housing middle-class planners and neighborhood busybodies prefer—and no housing at all.
4. Eliminate import duties.
5. Dramatically slash the tax burden at the state and federal level—sharply increasing the standard income tax deduction and the Earned Income Tax Credit—and making corresponding reductions in spending.

Notice how this package of reforms would work. It would ensure that poor people had more money. By eliminating monopolies (and quasi-monopolistic market distortions like tax subsidies for particular insurance choices), it would also ensure that prices for health care services—whether purchased directly or provided via insurers—were lower. By keeping a competitive market in place, it would ensure that competitive market pressures would tend to elevate overall product and service quality. And because it wouldn’t involve the installation of yet another czar, or the equivalent, because it would leave people free to make their own health-care choices, it would preserve liberty rather than limiting it. It would achieve all three of the goals proponents of current health-care reform measures say they want.

But such a plan would be anything but a continuation of the status quo. It would be a dramatic attack on the status quo, one that redistributed wealth from privileged monopolists to ordinary people, and dramatically increased the likelihood of access to inexpensive, high-quality medical care for all Americans.

I hope that anyone who calls themselves a liberal of any flavour would regard conscription as anathema. It is, after all, a form of slavery; greater even than the slavery we all participate in to a state whose policies we do not agree with but are obliged to conform. So, whilst I realize that it's a sentiment that does exist within the party, I am a bit disturbed that some amongst us agree with conscription when it comes to education.

See, I don't reckon that Tim Lott makes a case at all. Yes, he makes a series of assertions about how much better state education would magically become if everyone were compelled to go to state schools and private schools outlawed. But it seems to me that it is no more than blind faith. If those parents who current choose private education were to be forced, yes, forced, to send their kids to state schools, he argues, they would magically find their voice, not a voice of idealism and patronizing concerns for "other peoples' kids" but the self-interest of getting the best for their own.

The trouble is, it never seems to work that way. When it comes to government run services, with their one-size-fits-all approach, even if you do wish to change it, it takes a herculean effort, a lot of time and a great deal of persuasion - you are trying to turn around an enormous ship with an Oxbridge punting pole for a rudder - and you still have to settle for what potentially a bare majority decide. If you don't like how things are done at one private school, well you vote with your wallet and go to a different one whose ethos you prefer.

And if achieving change was such a lot of effort, would not someone prepared to pay north of twenty grand a year today not simply buy extra tuition - or are these statist idealists proposing to outlaw that as well - or perhaps rule that if state registered teachers want to offer extra tuition they have to do so for free so anyone can avail themselves of it?

And what of the specialist private schools that offer such specialized excellence that they are simply not replicable across the country - okay so perhaps we could nationalize the Royal Ballet School, but what about Chetham's, or, whilst there are other issues raised by post-compulsory education (assuming 16 remains the school leaving age) what about professional football club academies, and similar such centres of excellence? Are all places to be allocated by lot so there is an equal chance of every state school having its fair share of mouthy middle-class parents demanding change, regardless of how far the child has to travel or where his or her circle of friends are based?

Amongst the very wealthy (who, let's face it, are the only ones who can afford top boarding schools these days with fees approaching £30,000 a year) perhaps there would be a renewed interest in governesses - and at what stage does a group of families getting together to hire a couple of private teachers to "home-school" their kids become itself an illegal school? Or would home-schooling be outlawed as well? Even for our next potential Wimbledon winner whose parents want to support that talent whatever the cost?

No, the exact opposite is what is needed - free competition in the provision of schooling for everyone. It's bad enough that what passes for an education should be compulsory. We ought to see plenty of innovation and choice of styles, specialisms and prices. Frankly I think it is a good sign that, with just seven per cent of the market, you can get private schooling for round about the price that government funds state secondary schooling. Expanding that to one hundred per cent of the market can only bring those costs down so far as I can see.

And yes, Darrell, that includes the possibility that "profit making business" would be involved - and why not? Every business, even a social enterprise, has to aim to be profitable or else it aims to fail - the only difference between a social enterprise and a "profit making business" is whether one distributes the profits to individuals like shareholders or to social goods. After all, if you built a new school, would you expect the builders to do it for no profit; if you borrowed to do so would you expect the lenders to make no profit on the loan, if you have outside caterers do they operate for the love of it, what about the text-book publishers, the uniform suppliers, its IT infrastructure contractor or bandwidth provider? What if the school is a profit distributing teachers' co-operative? Is that any better, morally or ethically, than a Nord Anglia group paying their investors, the investors that made it all happen?

What is sure is that in a genuine free market, unencumbered by the sort of regulation and barrier to entry that government currently sets out for people who want to set up an educational provider, these profits would not be so great as they are when they are protected from other, innovative competition. Such protection, incidentally, would certainly include flogging off current assets to a private provider at some discount that, say, a local start-up provider were not offered - if there is going to be competition, it cannot start with some schools being transferred "on the cheap" to some big corporation simply because it has some kind of "preferred bidder" status.

Then we can start working out how much additional financial support people might need in the current inequitable economic system to be able to afford the appropriate sort of education for their children.

...then maybe you'll believe a published economist. Prof Steve Horowitz explains exactly what I have been trying to explain about the causes of the housing and debt bubble and thus the current recession. Or watch it here:

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.

Let me make no bones about this: I am now of the opinion, and have been for some while, that the only true way to Liberty for all is by abolishing government entirely: traditionally termed "anarchism". I'm also not much good at gradualism: someone once said to me that gradualism is a recipe for ultimate failure, and I agree. Give me a revolutionary change; get it over and done with and let us enjoy our new way of life as quickly as possible.

This is because I am, in Hayek's terms as explained in his "Why I am not a conservative", a genuine liberal - one who is willing to take a leap forward into the unknown without first having to know absolutely the outcome; that I have an unshakeable optimism that humanity is so damned clever that it will find, co-operatively rather than coercively, ways of dealing with any problems such change throws up; that if the cause is important enough we will find along the way solutions to issues as they arise.

More importantly (and not merely because I am a recent convert to voluntarism) I feel that the best time for such revolutionary change for many generations is now. Not only that but if we do miss this present opportunity we could actually find ourselves being carried away from the direction of liberty, both nationally and globally and for a considerable time - a dark age. The way governments have been able to finance themselves and their bribes of "safety nets"- both in terms of welfare and physical security - thus far, through control and taxation of their citizens, is being challenged and undermined in ever more popularly accessible ways - whether through travel, virtualization or communication - which happen also to be the best tools for helping to spread the revolution.

For the state to maintain this control in the face of these ever widening vistas of freedom open to its citizens will require ever firmer crackdowns and monitoring of things like travel and communications, if only to try and "follow the money" to ensure that people are taxed "properly". When most international trade had to be done through intermediary companies it was relatively simple to have someone at Custom House Quay signing things in and out of the country, but when we can buy and sell things individual to individual around the globe that all arrive here in millions of small packages addressed direct to the individual involved in the trade it requires a great deal more effort to monitor. Just because electronic communications leave traces that make it possible to track them automatically does not mean we should do so. If the Royal Mail steamed open every letter or package we would be appalled - but of course if it did the whole thing would grind to a halt. In an era where we can potentially work online for anyone in the world and be paid in a location and currency of our choice, where do our taxes go?

But, where the printing press heralded the death-knell of clericalism and the steam engine of agrarian feudalism so mass communication and transport heralds the end of the need for representative government. And just as, even if the first stages of the reformation ushered in by the end of clericalism and industrial capitalism taking over from agrarian feudalism were painful for some they have both been beneficial for most in the longer term, so the wrench from a deeply entrenched statism will also likely affect some more positively than others, the pace of contemporary change and innovation is such that this could be one epochal change in which we are able to fix those problems in "real time" and spread them rapidly around the globe.

Now I am of course familiar with many arguments that most of you might want to throw at me about "positive liberty", and how collective action is essential for giving people opportunities the "market" could not give everyone: after all, I used to make such arguments as well. Let me start with what ought to be an obvious statement: there is nothing a state can do that individuals, sometimes acting together in some way other than through government, could not do, by way of creating these "positive liberty" opportunities.

Leave aside for a moment the obviously crucial issue of whether they would create such "positive liberty" opportunities in the absence of a government forcing them to do so; can you honestly think of any positive function the state currently provides that only a state could provide? Leave aside also, which is a part of the previous question, whether non-state non-coercive mechanisms could deliver such "positive liberties" as "efficiently" or "cost effectively" as the state alternative. I am merely trying to get your agreement at least that yes, we could have private education, we could have private health care, we could have private charitable welfare safety nets, we could have non-state constructed and owned transport systems and infrastructure, we could have non-state security guards, investigative services and arbitration services.

Assuming that you are with me so far then, that the state is not the only conceivable mechanism that could deliver such positive liberty opportunities we ought to look at what price we pay for having a state provide all these things. I don't mean the direct cost of these "positives" but any "negatives" having a state provide them brings; the "collateral damage" if you like.

And what an appropriate statist phrase that is, for we should start with the area in which that phrase resonates the most. It has been estimated that somewhere between 175 MILLION and 230 MILLION people have lost their lives over the past century in wars between and within states and in politically motivated atrocities, human rights abuses and recklessness about the consequences of political policy - things like the often forgotten million or two Germans that died having been ejected from Eastern European countries after WWII not caring where they were to go or how they were to get there alive. And that doesn't include all those killed, for example, through law enforcement where the "crimes" being enforced against do not or should not breach the "harm" principle beloved of liberals.

Then there is the direct cost of governments providing these "positive liberty" opportunities; the welfare state, redistribution and so on paid for largely out of taxes. Here in the UK we are approaching a point at which tax will take 50% of our national income. Despite decades of many governments trying to create a system that is fair and redistributive (what they like to call "progressive"), it is still the case that the least well off taxpayers tend to be paying a greater share of their income in taxes than anyone else. So whatever the benefits various political parties may have tried to bribe the electorate with, assuming that when liberals express concern about lack of these positive liberty opportunities they are mostly concerned about the least well off, we find that for much of the time the poor (especially the working poor) are paying the most, proportionately, for providing these services to their fellow less well off citizens. As it has been said when you rob Peter to pay Paul, you are sure of the support of Paul.

Indirect costs are just as important, though. When the state provides all these things it usually does so as an actual or a de facto monopoly. Yes, we have a small private education system, a small private health care market and so on (and even in both of them they are heavily regulated by government so don't offer an open choice), but essentially most of what the state provides is done by way of monopoly. Even if the state only finances and hires corporations actually to provide the service, as it does with much infrastructure, including all the so-called privatized utilities in the UK, the state either controls who gets the contracts or heavily regulates those who provide quasi-private services.

There is little incentive to do all this efficiently, except that at some point, and the tax-paying public are remarkably tolerant about this, we might vote them out if we think they are spending too much or not efficiently enough. There are few price mechanisms even to indicate if they are doing things efficiently and they end up inventing measures and league tables to approximate for some market mechanism. And they are frequently done on a massive scale, so that initiative is difficult and best practice spreads slowly and with deliberate politically controlled pace. The tax paying public are of course very tolerant because so long as they perceive that more people are paying more than them as individuals then they must be getting as good a deal as it is possible to get.

And finally, but crucially for me, there is the play-off, for liberals at least, with "negative liberty" that all this, and the rest of the state's interference in our lives, creates. Monopolistic services reduce choice. Regulatory burdens reduce entrepreneurialism both in the areas dominated by public provision but also throughout the economy - 80% of the sample of 25,000 small businesses surveyed recently in Oxfordshire said that their biggest headaches were regulatory burdens, especially keeping pace with what often seem like arbitrary change in regulation.

Tax, whichever way you cut it is an imposition on peoples' earnings and wealth. Even for those who feel that the democratic process means that the citizen is effectively agreeing to this as a price of their involvement in that society, in reality we always know that there are people who will not agree with the particular mix of taxes, the particular uses the money is put to and so on. For them, and this could be 49% of the voters, never mind the electorate, it remains an imposition.

In order to enforce this agreement of the bare majority (or the first past the post here in the UK of course - so it is most of the time not even a majority) the state must have the power to threaten people who do not wish to comply. This monopoly of the use of force must always be a challenge for the lover of Liberty. This monopoly is what gives the state the ability to impact on so many other arbitrary areas of our lives. Like any other monopoly it in inherently inefficient. As a monopoly wielded by one group of citizens over another and for which fierce political competition to control it exists, there is always a temptation to bid for that power by offering new restrictions on others, until you end up with the sort of bloated over-legislated state we see in the UK today, which, even with a willing government and citizenry will take many decades to dismantle.

So, for me, given all these costs of having a state monopolistic form of government, against the possibility that there are many other mechanisms for delivering the "positive liberty" type functions social liberals say makes that state essential, even if some of them are prepared to admit it might be a "necessary evil" it is they who must prove the negatives are worth those positives. Circular arguments, or arguments solely from previous authority, are not enough - "the state provides education because people look to the state to provide education, or because the state has 'always' provided education". If you want to be considered in the least bit liberal, for me, you need to have a robust cost-benefit narrative about the state that it is the most efficient, most equitable and, given those other negatives, least impacting on other aspects of life way of delivering these goods.

Is there anyone willing to give such a thing a go. I personally believe it is an impossible case to argue.

Just a brief post to recall that today, 29th April, is the hundredth anniversary of David Lloyd-George's 1909 "People's Budget". Thanks to the wonders of the interwebs you can now read the whole budget online.

He ended (the main section - in the "Balance Sheet" section) with these words which have stood for a century accusing his successors of all parties for not having solved the problems he set out on the road to do:

"This, Mr. Emmott [in the chair of the Ways and Means Committee to which the budget was addressed], is a War Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away we shall have advanced a great step towards that good time when poverty and wretchedness and human degradation which always follow in its camp will be as remote to the people of this country as the wolves which once infested its forests."

[from "Balance Sheet": Budget 1909

From the financing of the newly created Old Age Pension and Disability insurance to the funding of the preparations for real war in the form of spending on Dreadnought battleships there was much for Lloyd-George to find in his budget. He didn't miss a trick, and more or less anything that could conceivably be taxed was, in many cases for the first time, taxed.

But for many of us it is for what ended up not being taxed that this budget is most remembered. The debate surrounding this budget, with speeches up and down the country by Lloyd-George himself and more notably perhaps Winston Churchill, must be one of the best documented in history, for it was a first attempt to implement some permanent form of Land Value Taxation. A tax shift that Churchill described as:

"the new attitude of the State towards wealth. Formerly the only question of the tax-gatherer was, "How much have you got?" We ask that question still, and there is a general feeling, recognised as just by all parties, that the rate of taxation should be greater for large incomes than for small. As to how much greater, parties are no doubt in dispute. But now a new question has arisen. We do not only ask to-day, "How much have you got?" we also ask, "How did you get it? Did you earn it by yourself, or has it just been left you by others? Was it gained by processes which are in themselves beneficial to the community in general, or was it gained by processes which have done no good to any one, but only harm? Was it gained by the enterprise and capacity necessary to found a business, or merely by squeezing and bleeding the owner and founder of the business? Was it gained by supplying the capital which industry needs, or by denying, except at an extortionate price, the land which industry requires? Was it derived from active reproductive processes, or merely by squatting on some piece of necessary land till enterprise and labour, and national interests and municipal interests, had to buy you out at fifty times the agricultural value? Was it gained from opening new minerals to the service of man, or by drawing a mining royalty from the toil and adventure of others? Was it gained by the curious process of using political influence to convert an annual licence into a practical freehold and thereby pocketing a monopoly value which properly belongs to the State—how did you get it?" That is the new question which has been postulated and which is vibrating in penetrating repetition through the land."

[From "The Spirit of the Budget", a speech given in Leicester in Sept 1909, recorded in Churchill's own memoirs "Liberalism and the Social Problem" and put online by Project Guttenberg.

When at last the Finance Bill of 1909 was rejected by the House of Lords (an action that led directly to two General Elections and the eventual imposition of curbs on the Upper House's power in the form of the Parliament Act 1911) Richard Cobden's comments in the Corn Laws debates in 1845 had come to its most extreme conclusion:

"For a period of one hundred fifty years after the [Norman] Conquest, the whole of the revenue of the country was derived from the land. During the next one hundred and fifty years it yielded nineteen-twentieths of the revenue. For the next century down to the reign of Richard III it was nine-tenths. During the next seventy years to the time of Mary it fell to about three-fourths. From this time to the end of the Commonwealth, land appeared to have yielded one half of the revenue. Down to the reign of Anne it was one-fourth. In the reign of George III it was one-sixth. For the first thirty years of his reign the land yielded one-seventh of the revenue. From 1793 to 1816 (during the period of the land tax), land contributed one-ninth, from which time to the present [1845] one-twenty-fifth only has been derived from the land. ...Thus, the land which anciently paid the whole of taxation paid now only a fraction. ...The people had fared better under the despotic monarchs than when the power of the state had fallen into the hands of a landed oligarchy who had first exempted themselves from taxation, and next claimed compensation for themselves by a corn law for their heavy and peculiar burdens."

Source: School of Co-operative Indivdualism, Quoted authors on the land question

The course of that "implacable war against poverty and squalidness" was set and as we know today, continues now and will continue until we learn to stop taxing production and honestly gained incomes and start instead to undermine the fundamental inequities of the economic system that traps so many in inescapable poverty, as people like Lloyd-George, Churchill, J S Mill, Henry George, and many of the individualist anarchists of the nineteenth century, like Benjamin Tucker knew only too well.

A century is long enough - real poverty reduction will never be achieved by redistributing the power of real economic growth but in eradicating these fundamental inequities that prevent people from bettering themselves. Alistair Darling, you have no hope of matching Lloyd-George. Learn from them, or give it up!

I am reminded by Henry Law's blog also that this month sees the 350th anniversary of the take-over the Diggers under Gerard Winstanley of various bits of land across several counties of the south of England and south Midlands.  Later in summer sees the anniversary of their arrest and removal.