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The LVTC blog, by Henry Law

The comments in the LVTC Blog are a personal view of our Hon. Secretary Henry Law and do not necessarily reflect the official policy of the Campaign.

This is a place for personal observations and comments on politics, economics, current affairs, on-going discussions on the potential for LVT to remedy some of the current ills, and the impact on Society of any of the above. 

Please read and enjoy, and feel free to respond to Henry if you have any thing you would like to add.

Why we are against a financial services tax

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It is worrying when powerful and influential politicians declare their support for damaging and unprincipled economic proposals. But it happens all the time. Setting out his pitch in anticipation of the G20 Summit which starts in a few days' time, Wolfgang Schäuble, Germany's finance minister, announced that he wants the European Union "to take the global lead in introducing a financial transaction tax to curb speculative trading, along with tougher regulation of big banks and the "shadow" banking sector, such as hedge funds." 

Since there will always be enough countries who will refuse to play ball, action by the EU, or the Eurozone countries alone, will be a futile and self-harming gesture. A tax on financial transactions would not have stopped the present troubles, which are but a phase in the economic roller coaster that had its origins over 200 years ago, nor will it prevent the same thing from happening again. 

There is no moral or economic justification for such a tax.

Our Dodgy Dossier

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Our Dodgy Dossier is of course for amusement only - but when politicians, professional economists and the majority of commentators obviously have little or no idea what they are talking about and make things up as they go along, we make no apologies for this frivolity.

If this sounds arrogant - how it is that leaders and economics experts from the greatest countries in Western Europe embarked on a project - the Euro - that all of us involved in this Campaign predicted would fail? Our only surprise is that failure came so quickly - we expected it to continue for at least a couple of decades before the inevitable collapse.

As for the banking crisis, the underlying problem is that the banking system has become an engine for sucking up the economic rent of land, through the issuing of loans secured on land titles. In reality, this is much the same as a sale-and-leaseback arrangement, using the banking system's ability to create money. It is an abuse of credit, but the banks could not do it if, as we propose, the economic rent of land were collected and used for public revenue. That the banking system is apparently contributing so much to Britain's economy merely shows how successful it is at rent collection, and incidentally, making the point for us, that land matters and that the rent of land is potentially a great source of public revenue. This is not something that any of the expert commentators has ever made. Are we wrong or just out of step?

Bank regulation deferred

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Anyone seriously concerned about the failures of the banking system should not lose sleep over the government's warning to defer the introduction of new regulations until after the next election. It would not have done much good. The underlying problem with the banking system is its standard model of lending: the use of land titles as security for loans, for, amongst other things, land purchase. This gives rise to a positive feedback loop and has always led to the growth, and subsequent collapse, of bubbles.

The underlying problem with the banking system is its standard model of creating and lending money, with the use of land titles as security for loans, for, amongst other things, land purchase. This gives rise to a positive feedback loop and has always led to the growth, and subsequent collapse, of bubbles.

Commercial banks lend money created out of nothing, charging interest above transaction fees, and through this use of land titles as security for the loans, are, in effect, land owners for the duration of the loan. What they call "interest" is actually, almost entirely, rent of the land. The system is little more than a device for capturing the economic rent of land.

What is responsible bank lending?

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I would suggest that responsible lending would be based on three rules.

Interest is not charged. The implication is that it is not paid, either.

Credit must not be given except for the purchase of man-made objects eg a ship, a building, artefacts and tools, and to enable production to continue eg to finance a producer in the time until the product has been sold. Credit should not be given for land purchase, or for the land value element of a real estate purchase.

Land titles must not be accepted as collateral for loans. Loans for house purchase should be given only for the fire insurance value of the building itself.

Banks would earn their money by charging directly for their services eg on an per-hour basis. Risks would be individually assessed and insured.

We are in constant danger of forgetting that underneath most of the present banking troubles, including the obscene pay of senior bankers, lies the credit-fuelled land price bubble caused by the banks themselves. Everything else, including the development of complex financial "products" (schemes for legal fraud), follows from the first thing.

We should also note that the practice of usury was banned in the Old Testament, a ban that was reasserted in a papal encyclical in 1745 and remains in force. Unfortunately, Christian churches and groups have forgotten.

The banking system I have described is what would evolve under the right system of land value taxation

A lot of opposition to cut through

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Having been active in campaigning for LVT for almost forty years and with nothing to show for it, I have long concluded that our main difficulty is the little matter of vested interests to overcome.

What are banks for? A personal view

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What exactly are the proper functions of a bank?

A homeopathic dose of LVT

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"Making the change revenue neutral should avoid opposition from Treasury and minimise increases for those required to pay more." (comment in a discussion on implementing LVT)

Do were really believe in what we are proposing? Some people need to pay more tax because many others are paying too much at the moment, often to the point that it is not worth employing them at the margin, and then the taxypayer is landed with the welfare bill.

The government did not worry unduly about what people would think when raising VAT from 15% to 20% within the space of a year. Why are we so lily livered? Who will take any notice if we are so terrified of upsetting anyone at all.

Put the right system in place (all land subject to LVT and the tax is on annual rental values), so that it starts off with around 50% paying a little bit less, which should not call forth an overwhelming chorus of opposition. That will not be revenue-neutral. It will raise a bit of extra revenue and pave the way for the much needed increase in tax thresholds.

We need to bring the public with us by explaining the strategy and then there will be support for the measure. There is no point in watering down the proposal to homeopathic levels of dilution - when the probability of ingesting a single molecule of the active substances is vanishingly small.

But if people do not want it, then so be it.

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