No. 7 - July 2005
New Economics of Sustainable Development.
Text now on the website
Our Common Heritage: Resource Taxes and Green
Dividends. Text now on the
Three 2005 Books
A. Werner: New Paradigm in Macroeconomics – solving
the riddle of japanese economic performance
Gibb Stuart: Fantopian Update
St. Paul's Institute Lectures, St Paul's Cathedral,
September, "Global Poverty: A Challenge from
October, "Global Poverty: A Challenge to the
American Monetary Institute – AMI 2005 Monetary
Reform Conference, Chicago, Sept. 29 - Oct. 2.
Economics Institute launched in House
Justice Network, Summer 2005 Newsletter
Proposed Research Project - any comments?
the February newsletter I noted that support around
the world continues to grow for a shift towards a new
world order. Unlike the one we have today, this would
be genuinely more democratic – financially and
economically, as well as politically and militarily.
It would systematically empower people and conserve
the planet's ecosystems.
then, a disappointing general election in Britain
in May failed to engage in serious debate
about that or anything else. But voters in
France and the Netherlands rejected a further shift
towards centralised corporate governance from
Brussels, the upsurge of popular pressure from around
the world led to a more relevant G8 meeting
than previous ones, and this month’s
terrorist attack in London has emphasised
the need for the G8 and other powerful countries to
show genuine determination to lead the way to a juster
world, not only for its own sake but to reduce active
and passive support for terrorism.
the 21 years since 1984, when we launched The Other
Economic Summit (TOES) as the first serious counter-summit
to the G7 (now G8), awareness of the need for
radical peaceful change has spread. Although
the formal conclusions of this year’s G8 may
have been disappointing, Bush is surely the last US
president who will proclaim it his prime duty to defend
Americans’ present way of economic life regardless
of how it affects everyone else. The time may be near
when mainstream policy-makers and professionals and
academics around the world will see that the serious
practical proposals for systemic changes in the global
and national political economy, published
over the years but so far largely ignored, are relevant
to their own careers.
that in mind, two more texts are now available
for free downloading from the Books page of
this website. One (see Item 1) is a Briefing for Policy-Makers
on "The New Economics of Sustainable Development".
I presented it to the European Commission in 1997,
but it wasn’t published until 1999 because some
of the Commission’s economists didn’t like
it! The second (Item 2) is the proceedings of an international
conference in Oxford in 1998 on "Sharing
Our Common Heritage: Resource Taxes and Green Dividends",
in which speakers from a number of countries put forward
specific proposals for a new people-centred and planet-centred
approach to taxation and income distribution.
Item 3 the books by Fred Harrison and Richard
Werner complement each other wonderfully .
is about how the pathology of a perverse tax
system encourages fluctuating land values
and house prices which cause booms and busts. Werner’s
is about the pathology of the present perverse
way of creating new money which, by encouraging
lending for the purchase of assets like land and housing
instead of investment in productive activities, also
contributes to booms and busts. Together they show
that serious study is needed of the links and
interactions between tax reform and monetary
reform. Item 7 is about that.
New Economics of Sustainable Development: A Briefing
for Policy Makers", 1999. Written
for the European Commission's Cellule de Prospective,
this briefing was published in paperback - by Kogan
Page, London; Editions Apogée, Paris (as Changer
d'Économie: ou la Nouvelle Économie
du Developpement Durable), and The Office
for Official Publications of the European Communities,
presented this Briefing to the European Commission's
Cellule de Prospective (Forward Studies Unit) in
1997. Opposition from some economists in
the Commission delayed its publication until 1999. Marc
Luyckx was the member of the Cellule’s
staff who commissioned the Briefing, achieved its
eventual publication, and wrote the text of the French
edition. He is knowledgeable, wise and far-sighted
about ethical, cultural, religious, and political
aspects of the future - see
very much appreciated his commitment to getting the
Briefing written and published.
In 1999 Jean-Claude Thébault, who had become Director of the Cellule, wrote, in his published foreword, “It
is because this new economic thought puts the citizen
and the common good at the centre of its concerns that
we believe that political decision-makers should
give it their attention. The ‘new economics’ is
based on a vision which could be a source of inspiration
for politicians: the systematic development
of individual responsibility, the effective preservation
of resources and the environment, respect for qualitative
and not just quantitative values, respect for feminine
values, and the need to place ethics at the heart of
following reflection from the Introduction and Executive
Summary will explain why I suspect the Briefing
may now seem more directly relevant to policy-makers
and people conerned with what policy-makers do than
it did when it was first presented eight years ago. "Because
it takes time for mainstream opinion to adjust to the
new economics, some of its more important policy implications
will not yet be acceptable to many of the people who
need to consider them. Until compelled to take them
seriously, why should policy makers do so in the midst
of all the urgent calls on their time and energies?
As I know from personal experience with the Central
Policy Review Staff of the UK Cabinet in the early
1970s, it is one thing for a forward studies unit to
commission studies on future possibilities, and quite
another thing to motivate policy makers to pay attention
to the findings. Nonetheless, policy makers
will do well to be aware of the growing momentum behind
the new economics approach, even if they do not yet
accept it themselves. Pressure will continue
to grow for changes in economic life that will give
primacy to the needs of people and Earth, and for changes
in economic thought that will provide new concepts
of economic efficiency and progress. Policy makers
will want to be ready to respond to the implications."
download the book, click
Our Common Heritage: Resource Taxes and Green Dividends".
International Conference on this topic was held on
14th May 1998 by the Oxford Centre for the Environment,
Ethics and Society. We discussed specific possibilities
for a long-term programme of economic reform under
would not be taxed on the values they add by
their skill, enterprise and work, but on
the values they subtract by their use
or monopolisation of natural and other common resources,
citizens would be entitled to share in the revenue.
principles will clearly contribute to an economically
more just and efficient and sustainable way of economic
life than the present one. The time has come to work
them out in practice.
proceedings include summaries of Questions
Arising in Discussion and Items for a Follow-up
Agenda, and papers by:
Philippe van Parijs (firstname.lastname@example.org)
Income and the 'New Social Question'
Mason Gaffney (email@example.com)
and Green-Light Taxes
Dimensions Of Ecotaxation,
Land Value Taxation And Citizen Dividends
Sustainable Development and Rental Taxation
Robertson - Resource Taxes and Green Dividends:
A Combined Package?
David Marquand - Concluding
download the proceedings, click
THREE 2005 BOOKS
Harrison: Boom/Bust: House Prices, Banking
and the Depression of 2010: Shepheard-Walwyn,
London, 2005, 274 pages, hardback, £25.00.
see Item 7 below on the need to explore
links between Land Value Taxation and Monetary Reform.
1983, in his earlier book The Power in the Land,
Fred Harrison predicted the 1992 recession in the UK.
It duly happened, following the peak of the 1989 boom
in the land and housing markets. Now, in this book,
he describes and explains more fully the series of
18-year business cycles that can be traced back in
Britain at least to 1776 and arguably as far as 1600
- with the dot.com boom and bust of a few years ago
as a “mid-cycle recession”. He
confidently predicts that the trough of the next recession
will be in 2010, eighteen years after 1992.
book contains a great deal of important factual material.
How astonishingly more profitable, under prevailing
policies, investing to achieve capital gains in land
and existing property has been than investing in new
production and construction! When Honda, the Japanese
car-maker, revalued its plant site in Swindon it found
the value of the land had risen from £6 million
in 1985 to £200 million in 2003. Its investment
return from buying the land had been much higher than
from making the cars. Over a longer term, the
rate of increase in the price of houses has hugely
eclipsed increases in other products and people’s
earnings. A particular 5-bedroom house in
Chelsea in London was sold for £1,000 in 1910;
ninety years later it was worth £4.5 million,
an increase of 450,000%, nearly 37 times greater than
the increase in the price of a basket of basic items
like bread and potatoes over the same period.
shows that piecemeal attempts to deal with
the economic and social problems caused by high house
prices are almost always perverse and make the problems
worse. For example, subsidising the cost of
borrowing money to buy houses in particular areas for
public servants like the police or teachers or nurses
immediately encourages local landlords to raise their
prices, channels the extra money straight into their
pockets, and makes it more difficult for other local
people to get on to the housing ladder.
me this book is particularly important for its insights
into the pathology of taxation. For example:
effects of existing tax policies are
- to privatise social
income (by failing to tax the profits made by people
and businesses from the rising value of common resources
like land), and
- to socialise private
income (by taxing earnings from work, skill, enterprise
and productive investment);
inevitably biases banks and other lending institutions
towards lending for investment in existing assets
like land and against lending for investment in productive
and creative activities; and
these effects must underpin new policies on taxation
and monetary control to deal with the
cycles of boom and slump, to solve the recurring
problem of rising house prices, to finance public
investment in infrastructure like hospitals, schools
and transport, and generally to move towards a
more efficient and socially just economy.
everyone will find this book an easy read. But responsible
financial and economic leaders around the world should
get their staffs to brief them on its policy
implications. And many people to whom the future of
house prices is a personal or commercial concern may
want to ask their financial advisers what they make
of Harrison’s prediction of a collapse in 2010.
further details about the book, click
A. Werner: New Paradigm in Macroeconomics:
Solving the Riddle of Japanese Economic Performance: Palgrave
Macmillan, 2005, 423 pages, paperback, £19.99.
see Item 7 below on the need to explore
links between Land Value Taxation and Monetary Reform.
am grateful to Emma Dawnay, Senior Researcher at the
New Economics Foundation, for drawing my attention
to this book. Its cover carries a recommendation from
the celebrated monetary economist Charles Goodhart
- “a powerful and important book, which challenges
much received wisdom”. A good deal of it is devoted
to detailed analysis mainly of interest to specialists
on the monetary and banking aspects of macroeconomics
- not an easy read for non-specialists. But, as an
unconscious complement to Harrison’s approach
(he makes no reference to taxation pathology), Werner
draws challenging conclusions from Japan’s extraordinary
asset boom between 1955 and 1989 – land
prices rising by over 5,000%, compared with an increase
of less than 500% in the consumer price index – and
then the long-drawn-out economic depression and stagnation
of the 1990s.
main conclusion is that the central bank, the Bank
of Japan, failed to control the creation of credit
(i.e. bank-account money) by the commercial banks and
to regulate the purposes they lent it for. In two
very interesting chapters on "Solving
the Enigma of Banking and Money" and "Credit,
Money and the Economy" he summarises
the history of banking and credit creation. He stresses
that the special role of banks in the economy is that
they “issue additional claims on existing resources.
Bank credit creation does not channel existing money
to new uses. It newly creates money that did not exist
beforehand and channels it to some use”. He notes
that new money created by banks out of nothing and
credited to their customers’ accounts, becomes
indistinguishable from other money in bank accounts;
and this enables banks to perpetuate the mistaken but
widely accepted view that they are merely intermediaries
facilitating the transfer of existing purchasing power
from some of their customers to others.
finds wide agreement among researchers that before
the 1980s the Bank of Japan successfully controlled
the growth of bank credit (i.e. the creation of money
by banks) by direct credit controls - known
as window guidance, reflecting the traditional
visits of commercial bank officials to the 'teller
window' or counter of the Bank of Japan to be told
how much they should lend for what purposes during
the following quarter. From his in-depth analysis of
monetary policy alternatives, Werner concludes that
reviving some such approach – perhaps with more
detailed distinctions between desirable and undesirable
uses of bank credit - is likely to be a more successful
policy than today’s regulation of the overall
interest rate by central banks. That one-size-fits-all
policy can obviously do nothing to correct the tendency
of commercial banks - for which, as profit-making companies,
they cannot be blamed - to lend more profitably for
speculative investment in the real estate market than
for productive investment in manufacturing
and service industries.
emphasises that his proposal to revive the policy of window
guidance would apply worldwide, not just to Japan.
It would, in fact, represent a paradigm shift
away from the school of ‘neo-classical economics’ that
has had such worldwide dominance in recent years, “has
severely limited the restraints that governments can
place on corporations” and has made it “questionable
whether democracy can be maintained”.
don’t terribly like the idea of giving central
bankers responsibility, under democratic supervision,
for directing where commercial banks should channel
their lending. I prefer the simpler alternative
transferring to the central bank - as an agency of
the state - responsibility for actually creating
new money in accordance with monetary objectives
decided and published by the elected government,
requiring the central bank to credit the new money to
the government to spend it into circulation along with
other public revenue from taxes, etc.
would not, of course, discourage commercial banks from
lending already existing money for speculation
in the rising value of assets like real estate. But
that would be dealt with by a fiscal reform – you
guessed it! the tax shift advocated by Fred Harrison
that reservation, I applaud Werner’s view that, "once
the facts of credit creation and its potential are
more widely known, democratic processes can be used
to decide upon the goals… Not only
recessions, unemployment and boom-bust cycles, but
also poverty and destitution can be eliminated". I
warmly recommend this book for its important new thinking in
further details about the book, click
Gibb Stuart: Fantopian Update: Ossian
Publishers (268 Bath Street, Glasgow, G2 4JR),
2005, 112 pages, paperback, £6.00 (inc p+p).
fable of Fantopia conveys the absurdity of the present
money system, by which governments allow
commercial banks the privilege of creating money
as profit-making loans and then borrow it themselves
from the banks at great expense to taxpayers and
citizens and the National Debt. The fable also illustrates
the pressures from bankers and their allies on politicians,
journalists, economists, academics and others to
prevent this absurdity being widely understood and
isn’t just an absurdity, of course. If virtually
the whole supply of public money which everyone has
to use is created by banks as interest-bearing loans,
the burden of debt and indebtedness within and between
nations inevitably continues to grow, as does the wealth
and power of the banks. This is a serious cause
of the economic inefficiencies and injustices in the
world, and a serious threat to the competence and credibility
of political democracy.
new, updated version of the fable ridicules the UK
government’s Private Finance Initiative (PFI),
which allows it to raise high-cost private sector finance
to invest in public infrastructure while keeping the
huge resulting liabilities to taxpayers off the government’s
accounts. It also includes a number of useful
supporting texts, including recent Early Day Motions
in the House of Commons which call on the
government to commission an independent review of the
benefits of increasing the proportion of publicly created
money in the economy.
book can be ordered here.
Further information can also be found at the Prosperity
Paul’s Institute Lectures, London
September, St Paul's Cathedral, 6.30pm
Poverty: A Challenge from Africa - The
Most Revd Njongonkulu Ndungane, Archbishop
of Cape Town and Metropolitan of the Anglican Church
in Southern Africa.
Daleep Mukarji, Director, Christian Aid.
October, St Paul's Cathedral, 6.30pm
Poverty: A Challenge to the World - Professor
Jeffrey Sachs, Director of the Earth Institute
at Columbia University, New York, and Special Advisor
to the Secretary-General of the United Nations.
Revd Peter Selby, Bishop of Worcester, author
of Grace and Mortgage: the Language of Faith
and the Debt of the World (DLT 1997) and formerly
William Leech Professorial Fellow in Applied Christian
Theology at Durham University.
lectures are free and no tickets are required. Seating
is on a first come, first served basis; doors open
details from www.stpauls.co.uk/institute.
American Monetary Institute – AMI
2005 Monetary Reform Conference, Chicago, Thursday
Sept. 29 - Sunday Oct. 2.
conference could mark a very important breakthrough
in the United States. Full details from www.monetary.org/2005conference.
GREEN ECONOMICS INSTITUTE
new Green Economics Institute was launched in the House
of Commons on 12 July 2005.
TAX JUSTICE NETWORK (TJN) - www.taxjustice.net
lead article by Richard Murphy in TAX JUSTICE FOCUS,
the quarterly newsletter of the Tax Justice Network,
Summer 2005 Vol 1, No 2, is on tax justice
and the major accountancy firms. It quotes
a report on Tax in the Boardroom issued by
KPMG International in March 2005. Although that report’s
accusations of emotional and inaccurate comment are
false, it makes it crystal clear that TJN has
been having a very big impact on large corporations
and the big accountancy firms that help them to cheat
the taxman. This is what KPMG says:
has changed dramatically in recent years. Its
public profile has become much more conspicuous,
it has acquired moral, ethical and social dimensions
that have never been discussed before and, for these
business management issues associated with
tax have become more complicated, more subtle, more
steeped in risk and much more challenging.
emergence of pressure groups such as the Tax Justice
Network in the UK is further evidence of the higher
profile of tax on the wider business stage. Tax management
has been the target of some emotional and, arguably,
inaccurate comment in an increasingly heated
debate about whether corporations are paying their "fair
share" of taxes. The main point is
not that the accusations are often unjustified, but
the fact they are made at all.
has news value now and, although often unfounded, "naming
and shaming" attacks on alleged
tax avoiders can damage their reputations
in the eyes of important stakeholders, which can
lead to sharp short-term share price falls and the
unwelcome attention of more than one taxing authority.”
own view is that we need a shift away from the taxes
on personal incomes and business profits which rich
people and businesses can now avoid by transferring
those incomes and profits to tax havens, on to taxes
on the value of common resources which rich people
and businesses now freely enjoy but couldn’t
transfer to tax havens if they were taxed. Meanwhile, all
success to TJN with its good work.
A PROPOSAL FOR A RESEARCH PROJECT
is striking how well the books
by Fred Harrison and Richard Werner (see
Item 3) complement each other, though neither author
seems to be aware of the other’s work.
is about the pathology of a tax system which
encourages fluctuating land values and house prices
which cause booms and busts. Werner’s is about
the pathology of a way of creating new money which,
by encouraging lending for the purchase of assets like
land and housing instead of investment in productive
activities, also contributes to booms and busts - and
explains Japan’s long drawn out economic stagnation.
the two together brings home the need for serious
study of the links and interactions between
proposals for dealing with these two pathologies –
by replacing taxes on productive activities with
taxes on the value of land (and other common resources),
by transferring the creation of money from commercial
banks to the state.
for both of these is growing, but so far separately
among two different sets of academics, professionals
and activists. The two approaches have much in common.
will help to smooth out the peaks and troughs of
economic cycles due to house price booms
and busts, and banking booms and busts.
When land values are taxed, continual rises
in the capital value of land - that now encourage
banks to keep the vicious spiral going by
offering bigger and bigger loans for land
and housing purchases – will
be reduced. When banks are no longer allowed
to create new money, money will no longer
flow immediately at birth into speculative
investment in rising land and house prices.
will make it possible to reduce distortionary taxes that
now damage the economy, replacing them by public
revenue collected in one case from the society-created
value of land and and in the other from the value
of creating the public money supply.
will distribute more fairly the publicly created
value of resources that should be shared in common,
and remove the ‘free lunches’ now
enjoyed by the landowners and banks, business
corporations and rich individuals, who are
now allowed to 'enclose' the value of those
resources for private profit.
will open up opportunities for enterprise and
work to people now excluded from them.
will discourage environmentally damaging activities,
or at least stop encouraging them; and
will make the tax system and the monetary system
more transparent, allowing the electorate,
politicians, economists and other professionals
of many kinds to see more clearly how these systems
work and how to improve them.
research project is needed on the links and interactions
between the two approaches, in order to clarify the
necessary reforms in tax policy and monetary policy.
is relevant that partial applications of the two proposals
have recently been or are currently being explored.
Growing Land Values. Local government
agencies, including the Greater London Authority,
are studying whether increases in property values
created by rail and road transport development
could provide the money to finance it, and how
that could be done.
Creation of New Money. A proposal was
put to the US Congress a year or two ago that the
federal government should put newly created money
into circulation in the form of interest-free loans
to local government for infrastructure investment;
and it has been proposed in several recent House
of Commons Early Day Motions that the Bank of England
should create money for the government to lend
interest-free for public infrastructure projects,
replacing loans via the much more expensive Private
Finance Initiative (PFI).
proposed research should include the following questions: would
such partial approaches be useful stepping stones towards
full acceptance of the basic principle that
publicly created land values and the value of creating
the national money supply should be sources of public
revenue, not private profit? or would they
risk obscuring that basic principle, and possibly even
discrediting it if for local reasons some
partial scheme should fail?
here to email me comments or suggestions on this
proposed research project.
Old Bakehouse, Cholsey
Oxon OX10 9NU, UK
Tel: +44 (0)1491 652346