The following blog has been reproduced, with permission, from the CommonSpace website. Common Space is run by Common Weal, which is a pro-independence think thank in Scotland, for whom I have a lot of respect. Their daily email is one of the pleasures of my late afternoon: whether you're interested in Scotland or not I recommend it. The blog is by their head of policy, Ben Wray.
THERE'S something different about the mood after the Grenfell Tower tragedy. There's a sense that this is deeper than one tower, one company, one council, or even one prime minister — this is about everything.
It feels like the whole fabric of modern British society has been exposed by this, to the extent that focusing on calling for Theresa May's resignation feels like it is somehow majorly downplaying the depth of this crisis.
Getting one Tory to resign only to be replaced by another seems almost disrespectful as any sort of answer.
This feeling is likely to be derived from a deep truth: housing really is central to everything. We can't understand our society, our economy, our geography, our psychology, what unites us, what divides us, family, debt, work, and wages, without understanding the role of the home in our lives.
Understanding how housing and the land it sits on operates in the modern economy is the essential starting point to getting to grips with the UK's housing system. If we don't understand the economic drivers of the housing system, it's impossible to get to grips with the terms we have heard frequently in the aftermath of Grenfell, like gentrification, regeneration, land banking and so on.
In Rethinking the Economics of Land and Housing, Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane have produced a superb heterodox economics textbook that should be a vital resource on the bookshelf of all of those interested in getting to grips with housing in the UK.
It is a historical study, a theoretical critique and a policy agenda all in one, providing a systemic analysis of the central role of land in the UK's hyper-financialised economic model.
The first thing to understand is that land is not like other forms of capital in the economy: it has unique qualities which have to be understood. Land is finite — there is a limited supply of it — and it is permanent — it does not depreciate.
This means it is a uniquely desirable type of capital; as long as populations continue to rise it is likely to rise in value too. As Mark Twain said over a century ago, "buy land, they aren't making it anymore".
Land therefore plays a very different role in market economies to capital: whereas Apple will produce more iPhone's to meet demand, more land cannot be produced to meet housing demand.
This gives land and property owners special power in the economy: their monopolisation of the fixed supply of land can mean they extract the surplus value produced by growth in the economy through charging rent on use of their land.
This rentier exploitation is, unlike other forms of capital, entirely unproductive: it does not produce anything or provide any service; it is derived solely from the legal ownership of the land.
Remarkably, the unique role of land in the economy is ignored in mainstream economics: it is treated the same way as any other form of capital. This, the authors argue, is one of the root causes of the discipline's repeated failure to see crisis coming in the global economy.
From the late 1970s and early 1980s to today, a great transformation has taken place in housing — land and property values have gone through the roof. The rise in property value has significantly outstripped rises in incomes and growth.
This has created a surge in wealth inequality between property owners and renters, and is the central finding of Thomas Piketty's globally renowned book, Capital, which used historical data to show that asset price inflation now outstripped profit, making capital investment in the real economy a loser for any business man or woman compared to rentier exploitation.
This transformation has been driven by financialisation — the turning of social goods into financial assets. UK banks' main role used to be as lenders to businesses. While lending to non-financial corporations has remained fairly static, mortgage lending directly to workers has surged, from 20 to 60 per cent of GDP.
Mortgage lending is now the main function of British banking. Once again, mainstream economics is unequipped to understand the role of financialisation in the modern economy.
Banks' role is seen as recycling savers' money to borrowers as credit for productive investment, oiling the wheels of the economy. But what the banks do with mortgage loans has little to do with investment, and even less to do with existing money in circulation.
When the banks create a new mortgage loan they create new money, and they create this credit often for existing property or land purchase, not new investment. This infinite supply of money in the form of mortgages interacts with a finite supply of land, inflating house prices.
"Rising prices mean households and firms must borrow more to become home or landowners. Therefore the supply of bank credit can be seen to create its own increased demand for even more credit, assuming a fixed supply of land. The demand for land can then stretch well beyond people's incomes or firms' profits — and the growth rate of the economy — in particular if people expect house prices to continue to rise faster than incomes," the authors write.
Over 75 per cent of rising house prices since the 1970s can be put down to rising land values — less than a quarter is a result of rising construction costs, which have remained relatively static.
The logic of surging land values is not just to eat up incomes of those with mortgages, but to prevent many from entering the property ladder at all. This inequality is systemic to the housing system: if house prices were not out of reach of some, they wouldn't be the exceptional asset that they are for others. Property speculation becomes an end in and of itself.
As this asset inequality reinforces itself, a middle class layer of rentiers is created: rising property allows you to then own and rent other property (including using existing property as collateral). This creates hundreds of thousands of buy-to-let homes, increasing the share of landlord control of the total housing stock.
For many, this is likely to be a much more reliable asset to rely on in retirement than a pension.
An alliance of mortgage owners, property developers and bankers all end up having a strong vested interest in keeping the supply of new housing low. Why? Because scarcity is what allows these groups to reap the fruits of financialisation: if everyone could have a nice home to live in, the cost would drop like a stone, and so would the profits.
The result is a "low-supply equilibrium" where supply is kept artificially below demand.
The only answer is bold government intervention to change how housing is supplied and owned; to put people before the rentiers. If anything, the reverse has happened — there has been government intervention, but mainly to provide a form of welfare which reinforces the existing financialised housing dynamic.
In the 1970s, over 80 per cent of government housing subsidies went towards supply-side intervention; mainly the construction of homes. Today that has flipped to 85 per cent of subsidies for the demand-side, in the form of billions in housing benefit payments, support for first time mortgage lenders and such like.
The fundamental issue of the monopolisation and financialisation of housing remains untouched. The result is a deeply embedded class divide based on those who own the land and those who rent.
Ryan-Collins, Lloyd and Macfarlane put this into a bigger historical context: "Projecting these trends forwards, it would seem that the 19th century picture of the land economy is beginning to reassert itself in the 21st: sooner or later, the majority will find themselves renting from a small, wealthy minority of property owners.
The fundamental issue of the monopolisation and financialisation of housing remains untouched. The result is a deeply embedded class divide based on those who own the land and those who rent.
"In this light, the 20th century begins to look like an exception, during which successive waves of policy intervention — into land, housing and finance markets — allowed millions to achieve the dream of a decent, secure home. But as homeownership reached its limits and government abandoned attempts to address the problem of rent, the dynamics of the land market have reasserted themselves once again."
It is not for no reason that the 2008 financial crash centred on the US housing market. But whereas crises in the past have acted as a reset on asset values, the propping up of the banking system and continuation of neoliberal government policies has seen house prices bounce back quickly, and remain at a rate well above gross average earnings.
So we can't rely on economic crises to change the game, and neither should we — the devastation crises reek are always weighed overwhelmingly on those who can afford to suffer it the least. So what sort of political agenda could change it?
First, it's important to understand not all of the world is like Britain. While rising house prices has been a global trend, in countries like Japan and Germany house prices to earnings have been in decline since the 1970s, the reverse trend of the UK.
Germany is a society where most people still rent in a well-regulated sector, the mortgage market has more strict limits on it and most banks are public or co-operative owned and do not engage in land speculation.
The point is that there is different ways to do things, and if we want things to change we have to be open to thinking fundamentally differently about how we do things in Britain. Tweaks will be insufficient.
Other countries do not have a culture of privately owned land at all. In Singapore — hardly considered a communist country — 90 per cent of land is publicly owned. Land is leased by the state to private developers for a fee, and then returned to the state at the end of the lease.
The point is that there is different ways to do things, and if we want things to change we have to be open to thinking fundamentally differently about how we do things in Britain. Tweaks will be insufficient.
The authors make a whole host of policy proposals for reform that would each be worth an article in their own right. Some ideas should already be well known to followers of Common Weal's work on finance, land and housing: Land Value Tax, promotion of community land ownership, a state investment bank, compulsory purchase at use value, a more pro-active approach to planning and changing accountancy rules to make it easier for government borrowing to invest in housing.
Others such as credit controls on commercial banks, legal reforms to private tenure ownership and measures to incentivise private land investment (rather than speculation) are new to us and highly commendable.
The authors admit that the proposals are a policy agenda rather than detailed programme for reform. For instance, Land Value Tax, they admit, would have to be carefully introduced with transitionary measures in place to prevent a banking collapse as land values reduce.
The detail of how exactly this could be done is not addressed. Perhaps one way of moving forward with the agenda outlined here could be more work in some of these key areas to make them policy ready.
A proper programme for land and housing reform is needed now more than ever.
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Do we have a convert to the cause of abolishing agricultural subsidies and convergence subsidies which are incident on existing owners of land and capital?
The farm subsidies might be replaced by funding local authorities environmental programmes, but the principle is to stop the subsidy being capitalised into land value.
I generally agree with the points made here and in the book.
When someone appropriates a piece of land they limit the freedom of others and should compensate those whose rights are denied, just like the polluter should compensate the polluted. It is a classic example where a Pigouvian tax makes sense, the negative externality being the denial of others using the land potentially more productively. And even free market economists support Pigou!
https://en.wikipedia.org/wiki/Pigou_Club
The LVT is only Pigouvian because there it a market inefficiency due to owner occupiers imputing their rent (leading to over consumption/misallocsation). The LVT thus internalises the opportunity loss of those excluded from an irreducible factor of production. This would also happen if we all rented our housing off each other.
I’d argue the the excessive inequality baked into our current non-LVT economy also causes a market distortion (thin markets leading to reduced economies of scale), so perhaps the LVT could be called Pigouvian in that sense too.
Interesting, have to buy that. For the classical economists of course land was something distinct from capital (or ‘stock’), hence the famous threefold division of land, labour, and capital. This kind of analysis and policy prescription (things such as an LVT) is something that can command support and interest from several parts of the political and ideological spectrum – a lot of this is classic later 19th century radical liberal thinking. As this says, the tricky thing is how to get from here to there without bringing the whole house of cards down.
Essentially, by lending on land (as mortgages) the banks are parasiting on the productive economy. I used to worry about the effect of falling HPs on the banking sector and thus the economy, but after giving it quite a few years thought, I think these fears are somewhat over egged.
The main problem is if people cannot keep up with their existing repayments, perhaps due to negative equity. But if you look into this in detail, even this isn’t much of a problem. It can be dealt with by write downs which will still work out much better for the tax/future mortgage payer over all.
Quicker we get banks lending on productive assets/enterprises the better IMHO.
And so how do you deal with bank insolvency?
The mortgages are sliced and diced throughout the system of debt and derivatives so defaults would ‘cascade’ as in 2008.
Only option,bail out. People too squeezed by mortgages need a social housing option.
I personally don’t think insolvency would happen if a 100% LVT were put in place tomorrow. But as the LVT would be most likely phased in, not a problem anyway.
If you think we have it bad in the UK, may I suggest people look at Hong Kong, which, despite having a considerable amount of state-owned public housing, the fact remains, as in the UK, that waiting lists for said units are long – a minimum 5 years, whilst earnings thresholds mean that if you earn more than £1,800 a month, you are at the demands of the private rental market, which has fewer regulations than even the UK.
However, and here’s the gist, Hong Kong is now suffering from its largest housing bubble ever, with house costs far exceeding average earnings by multiple of 10X and more for homes little larger than rabbit hutches. Further, and what no one has identified presently after Grenfell, is the issue of REITS, which HK embraced with gusto, so whilst public housing was not privatised, anything associated with public housing was privatised and placed on Stock exchanges.
Moral of the tale, as housing becomes more and more unaffordable for the many something will have to give and to put it mildly, the future don’t look good for the rentiers.
As a further aside, and being stuck in Hong Kong because of present UK immigration policy regarding spouses, I’m struck by the daily torrent of UK property investment adverts I receive on most websites I visit – I’m targeted for adverts offer UK property for sale as an investment only in London, Manchester, Birmingham & elsewhere – our nation is being sold lock, stock and barrel overseas, and yet the Tories call themselves patriots. Funny that!!!!
Very well observed thankyou.
Another contributor to house inflation since 2008 has been interest rate policy. By keeping bank rate low, the clear message given to anyone with savings is that you are a fool to leave it in cash. Hence not just the super rich but everyone with any kind of savings have been encouraged to put their cash elsewhere. Hence BTL and the hideous reality of moderately ok pensioners buying BTL with their cash savings and more recently their liberated pension pots and thereby inflating property that their children can then no longer afford.
You are right it needs bold government intervention. Of course the problem here is the usual problem of conflicts of interest that MP’s cannot see – i refer of course to the large number of MP’s who have BTL, second homes or are otherwise personally invested in property. They are riding the merrygoround themeselves!
The now 40 year housing bubble has a real human cost, not only in destroying people psychologically but also in the way it breeds moral decay exemplified by inflated self interest. This extract from a Guardian report on negative reactions to the Grenfell survivors being re-housed in hugely expensive flats is indicative of this:
‘Among those exercising dogs and small children, the views were more mixed. “It’s so unfair,” said Maria, who was reading the news in the Evening Standard with two neighbours.
She bought her flat two years ago for a sum she was unwilling to disclose. “We paid a lot of money to live here, and we worked hard for it. Now these people are going to come along, and they won’t even be paying the service charge.”
The fear of their equity being undermined, dominates because the value of their house has become ‘everything they’ve worked for.’
This is the essence of a deep sickness created by rentier wealth extraction.
The game Monopoly should come with a health warning. For the society in which people play it.
I would recommend a quick look at Civitas’s Building Homes Faster http://www.civitas.org.uk/content/files/BuildingHomesFaster.pdf
This is quite complex and mainstream but there is a short section slightly out of kilter with the rest of the paper which essentially says if you want to build homes at pace, large-scale public housing is the only way.
Land value tax is something that needs to be explored properly by the powers that be post-haste.
The difficulty is that there has only really been one narrative that has been told in the media and people are generally very ignorant about what it would actually mean for them and what impact it might have on their finances.
I was chatting with a relative pre-election and mentioned LVT, which was met with an indignant regurgitation of the rags proclamation that this would be a tax on his large garden and would cost him £6k a year.
When I explained the subtleties, for example that the value of his land (including garden) would be estimated on the basis of current planning permissions (i.e. if it only has permission for one dwelling it won’t really make a difference that he has a larger than average garden), that a sensible LVT would incorporate lower rates for primary residences (i.e. the £6k quoted by the Mail is nonsense), and that it would replace council tax (and potentially others), he was much more receptive to the idea.
Even Winston Churchill couldn’t manage to get LVT through. So many vested interests in the UK – the landowning aristocracy, for example – which makes reform in this country more than others uniquely difficult.
Even when there’s a strong democratic mandate for it there’ll be obstruction at every turn from the landowning elites.
AGR/LVT was in the 1911 Finance Bill of Asquith’s Liberal Government. It passed the House of Commons but was defeated in the House of Lords. It was traditional landed interests in the Lords that ensured the Government defeat. This was the trigger for the House of Lords crisis, which led to a permanent change to the operation of the constitution; The Lords never again attempted to defeat a Government Finance Bill.
Unfortunately the AGR measure itself was lost in the ensuing political mayhem. The vested interests won, but I suspect were assisted by the arrival of WWI soon after. AGR was a brilliant measure, and we lost our way.
The underlying point is a simple one; we tax the wrong things. We tax the productive economy heavily; enterprise, labour and investment. We do not tax inertia; rent seeking: things like land that are easy to tax and hard to avoid or evade.
We also tax principally the things that are difficult (and expensive) to tax, or even to identify; what I would call ‘variable indefinables’ – such as “profits” (and this typically ends by only the easily captured paying fully – such as those on PAYE). All we are doing is feeding a collection of overpaid tax lawyers and tax accountants who are adding no value to anything.
I thought LVT was a charge on the value of unimproved land, i.e. any land that was developed wouldn’t be taxed and so prevents landlords passing the charge on to their tenants?
I can’t see why that would prevent it being recharged
How could you mandate that? There will still be a market
I’m not sure Richard. All I know is that every time I read about LVT, one of the first things that gets mentioned is that it can’t be passed on to tenants.
But I can’t see a reason on earth why not….
Because if you could simply charge tenants an extra £500 per month overnight, landlords would be doing it already.
Private rents are always the highest that the market can bear, aren’t they?
Rents, esp in London, are already stupidly high; how could tenants suddenly find an extra 25% or 50% on top of the rent they were already paying, to pay the LVT?
It would have to be met by the landlord.
I disagree
If all landlords were in the same position they woukd act like a monopoly
But from where would the tenants find the extra monthly payments, which would be considerable if LVT was to have any use?
The proportion of salaries spent on rent is already too high, killing demand and leading to increased private debt, some of which is now being used to pay rent itself.
Unfortunately it still seems to be a solution free zone and little radical political will to deal with this.
Someone has to bite the bullet otherwise we are condemned to years of economic and social stagnation. The housing market probably needs to collapse and the only way forward maybe something along the lines of negative equity cancellation. Even LVT being introduced now won’t cancel out a 40 year bubble.
I live in an area where there is a house price ration of 10:1 -utterly absurd with young people in a hopeless situation where social housing is like hen’s teeth.
Building lots of social housing will help but without credit controls the price reducing effect might be limited.
Something more radical is needed: credit controls + social housing + tapered bail out for those who hit negative equity.
The problem with “community land ownership” is what is known as “The tragedy of the commons” which essentially means that you end up a lot worse than when you started.
I have to say that is not my understanding
A lot of research on this issue by the late Eleanor Ostrom (only female winner of nobel prize in economics -for what it’s worth). She cites examples of how the ‘commons’ can work with good governance systems in place. See: http://www.aei.org/publication/elinor-ostrom-and-the-solution-to-the-tragedy-of-the-commons/
There are two ways to bring down house prices. Tax more or build more.
A 100% LVT would bring prices down by an average of 2/3rds (phased in if we felt the need). It would also allow the market to optimally allocate immovable property, rationalising our existing stock. Vacancy is not so much of an issue, under occupation is. In England and Wales alone, owner occupiers over consume nearly 12 million bedrooms compared to those that rent on a pro rata basis. So at the very least, we wouldn’t need to build as many of the extra houses we currently have planned, if at all. This is good as it would reduce costs in our economy.
Building more housing will never get prices or affordability to the same levels as a tax on land rents would achieve. It will also be adding substantial costs on top of existing inefficiencies in our housing market and economy.
The LVT also has the scope for reducing damaging taxes on output while increasing disposable incomes.
Affordability issues are not caused by supply. They are merely a symptom of economic injustice caused by the unequal sharing of land rents.
I think you list the argument when you said the market would optimally allocate
Sorry, but to be polite that is naive
No important market can function wihout some control, but the land market is just about the most dysfuncional and important there is. LVT would correct the land market like nothing else. Isn’t that one of the purposes of taxation which you hail, Richard?
@ Benjamin Weenen
“owner occupiers over consume nearly 12 million bedrooms compared to those that rent on a pro rata basis.”
Wow! Sounds suspiciously as though you’re after a “Bedroom Tax” for owner-occupiers. Or are you only targeting non-occupant owners of eg BTL?
I have to say that this thesis of over consumption’ worries me no end. In a few years I hope my sons will leave home at least part of the time. Who knows, maybe more. But these days, can I be sure for how long? Will I be over consuming if I do not downsize immediately? And must I then upgrade if they want to come home?
The idea assumes a) no attachment to ‘home’, which is suspiciously bizarre tio be a concerto only an economist can have made up and b) assumes no racist to moving, which is absurd
Not not at all. As tenants are already paying a defacto 100% LVT to their landlords, extending that so all participants in the market pay the same merely levels the playing field.
Rent controls are a bad idea because they act as an implicit subsidy to tenants which leads to over consumption/misallocation.
But what opponents of rent controls fail to do is apply the same logic to freeholders. Because they do not pay compensation, as a LVT, to those they exclude from valuable locations, they are in reciept of an implicit State subsidy worth £200bn per year.
Not only is the value of this implicit subsidy capitalised into selling prices and rents, pushing them up by an average of 200%, but leads excessive vacancy, under occupation and the tenancy for urban sprawl.
Markets are the best allocating device we have, as long as they are fair and efficient. For the housing market to fair, efficient and affordable a LVT is a prerequisite.
Respectfully, I have read economic nonsense before, but that takes some beating
The way this will end of course is that as the number of renters increase and the number of owner-occupiers decrease, the renters will eventually elect a government that will introduce rent caps, longer tenancies, increased taxes on landlords etc. This will make buy to let less attractive leading to a mass sell-off and a crash. We are nearly there with Labour getting just 2.5% fewer votes than the Conservatives, in part due to the decline in home ownership rates since the late 90s.
What would the effect of in effect nationalizing all land ownership in the UK?
Then have a land rent, functionally identical to a LVT?
How would you propose doing that?
Why nationalise land if the LVT is functionally the same? (although it hasn’t done Hong Kong and Singapore much harm)
You could instead form a national mortgage bank and mandate all lending on immovable property through that. The interest rate you choose would be a defacto tax.
An excellent analysis of the UK housing market, Richard.
What do you think about our rentier money system under which our medium of exchange, our broad money supply, must be borrowed into existence at interest from the commercial banking cartel? Since about two thirds of it originates through domestic mortgages, it is evident that the two primary unproductive parasitic rent extraction systems, land and money, go hand on hand. Why not reform both, with monetary reform as advocated by Positive Money?
All money is debt. It cannot be anything else. Positive Money do not understand this most basic of facts. Their prescription would be as about as disastrous as a result as a return to the gold standard. They are well intentioned but very wrong I am a afraid.
Money need not be debt. It can be a social convention that certain designated tokens will be honoured as a medium of exchange. Think of the microcosm of a game of Monopoly in which the money tokens exist without any corresponding original debt. The same holds for UK tangible cash. Historically of course physical stuff such as precious metals often functioned as money, again with no debt necessary for its creation. There is no law of nature that money must be created as debt – it is a matter of collective choice and agreement. That said, the two aspects of our present system, namely that it is both debt based and commercially issued, are logically distinct. Hence one possibility is to have (some) debt based, publicly issued money, and this is part of PM’s proposal.
Notes are debt
Pleaee go and read A Short History of Money noted here the other day
Without debt money has no value
And as a resukt Positive Money sell a disastrous and dangerous myth
Mathematics, logic and common sense support the theory that it is perfectly possible for a trading and investing community to issue collectively an adequate stock of money tokens to circulate within that community as a viable medium of exchange, a common utility. That community might be a baby sitting circle, a LETS community, a nation state, or even the whole planet. Clearly such tokens can be created collectively without any corresponding debt. Bitcoin and other crypto-currencies are recent further examples in which, interestingly, the collective debt free creation is distributed rather than centralised.
Whether a debt-free-at-issuance system might be better for the UK population than our present rent-a-currency scam can be analysed and debated, as PM do at length. Whether indeed such a system is an historic rarity can and should be investigated, and I thank you for the book reference. However, to state baldly that such a system is an impossible myth and not worthy of our attention simply shuts down dialogue.
Regretfully it seems that we do not share a means to discuss this extremely important topic.
Who makes Bitcoin? Who projects the value?
If some one makes another currency explain again who takes the seigniorage?
And if it’s the state explain how that is different from what happens now – when the currency wer have is entirely state made?
I suggest you read Ann Pettifor on this issue
Maybe we are wasting each other’s time here but I will make one last attempt to communicate the basic idea of a viable medium of exchange issued debt free by the collective of its users as a common utility to facilitate their economic activity.
Imagine a baby sitting circle. Members agree to use otherwise worthless tokens to trade baby sitting services with each other. Collectively they initially issue and allocate (say) ten tokens each and ‘trade’ commences. No debt is involved or created. The tokens are effectively free to produce.
Time passes and others join the circle. It is agreed that the stock of tokens is now inadequate for the expanded circle to function smoothly and some new ones are needed. So, how to issue these? Just as the initial tokens, the (identical) new ones are issued collectively and allocated evenly between members. Again, no debt is involved or created. The circle has a demonstrably viable and flexible medium of exchange, the issuance of which does not involve or create debt. It has a debt free, persistently circulating currency at virtually no existential cost.
Of course members can lend tokens to and borrow tokens from each other, maybe even charging interest, but that does not change the basic fact that the tokens are issued, that is they come into existence and into circulation, without any corresponding debt creation.
A nation state can do likewise on a grander scale.
I have read Krugman
And of course there was debt involved: people owe baby sitting duties
Why do you ant to miss the bleeding obvious?
But let’s go back to money: regulate the creation of money as PM suggest and there may well not be enough of it and so the economy would crash
Over do it and there is inflation
Link it to debt – as the baby sitting circle did – because the increased number of tokens simply reflected a greater volume of credit from transactions undertaken – and it works
Krugman was arguing against the gold standard which is remarkably akin to the PM model
I’d ay you just shot yourself in the foot
Ah, some clarity – you use the word ‘debt’ more generally than I do. Not obvious at all until you stated it.
I prefer to call the baby sitting duties an ‘obligation’ and use ‘debt’ to mean explicit monetary debt – an obligation to repay in money only, not in goods or services. This is the conventional narrow meaning of the word in the context of money, banking and the law.
Hence my ‘debt free at issuance’ condition holds. Good to clear that up.
PM would allow.banks to borrow some money into existence from the state to meet increased demand through the mechanism of reverse auctions. The bank that offers the best deal gets to borrow the new money from the state, presumably to lend on to its clients with an interest rate mark up. No bail outs, the bank lives or dies on its business decisions and risk assessment. This mechanism would also be a neat way for market forces to set wholesale interest rates. Note that this is the opposite of the current set up under which the commercial banks lend money into existence. There sre no ‘bank credit’ tokens, just plain state issued money being borrowed and lent on.
Come on! Don’t be ridiculous. Defining debt as purely relating to money is bizarre. Money has, after all, absolutely no use as money in our modern world. It only has value because it permits the recording of transactions relating to real obligations. It’s only the substance of these real transactions that gives money its value. So what you’re saying is money works as you wish it to in a world that does not exist. On that point I agree with you. But I live in tre real world where your fantasy is just that.