No. 11 - December 2006
Links to other Newsletters can be found here.
1. Two Celebrated Economists in the News:
1.2 Adam Smith
2. Climate Change
2.1 The Stern Report
2.2 Carry on Polluting
2.3 A Better Alternative
3. Towards a Reconstructed
3.1 Monetary Reform
American Monetary Institute - news
3.1.2 Prosperity - news
3.1.3 The Money Reform Party
Threatens the Future
3.2 Basic Income Studies: a New Journal
3.3 Mary Mellor: Down to Earth Economics
4. Book Reviews
Harrison, RICARDO'S LAW: Why Tony Blair's Project Failed:
House Prices and the Great Tax Clawback Scam
4.2 Bruce Nixon, LIVING SYSTEM: Making Sense of
4.3 Herbert Girardet , CITIES
PEOPLE PLANET: Liveable Cities for a Sustainable
1. TWO CELEBRATED ECONOMISTS IN THE NEWS
1.1 Milton Friedman died on 16th November
2006 aged 94. In his time he had played as important
a part in shaping the prevailing economic doctrine as
Keynes had done earlier in the 20th century.
Friedman's 'monetarism' supported world leaders
like Reagan and Thatcher in their opposition to 'Keynesianism'. TANSTAAFL ("there
ain't no such thing as a free lunch") encouraged
them and many others to rely on a 'free market' to
create prosperity, rather than on 'interventionist' social
spending and aid to keep economies going and help poorer
people and countries.
Now, however, it is becoming more widely understood
that, as the economy works today, it provides massive
free lunches for rich and powerful people and businessesand
countries at the expense of poorer ones; in
other words it allows the rich and powerful to profit
from more than their share of the value of natural and
publicly created resources in ways that impoverish the
poorer and weaker.
Friedman's death is prompting the
idea that the 'free market' era may be ending
and the pendulum may be swinging back towards 'interventionism'.
Routine practitioners and commentators in mainstream
politics and economics find it hard to question the
conventional either/or of that swinging pendulum.
How to escape the unsatisfactory choices it offers is
what this website is mainly about.
1.2 Adam Smith was not an economist; he was
a moral philosopher; economists had not been invented
in his time. But economists have co-opted him posthumously
as the father of their discipline.
On 29 October 2006 Mervyn King, Governor of the
Bank of England, gave this year's annual
Adam Smith Lecture called Trusting in Money:
from Kirkcaldy to the MPC in Kirkcaldy, Smith's
birthplace in Scotland in 1723.
Please read it; it's very interesting.
It reminded me of being enlightened and moved
by James Buchan's short
life of Adam Smith published
earlier this year.
The lecture focused on the social institution
of Money. Discussing the importance of social institutions
in a market economy, the Governor said
explains many economic decisions. But a market economy
also requires social institutions .. [which] we choose
to build as a framework for collective decisions that
constrain individual behaviour".
Although we haven't yet developed money as
a democratic social institution systematically
designed to provide a constructive framework of incentives
for our economic behaviour, the Governor's recognition
that the market economy necessarily has to be framed
by social institutions of one kind or another is important.
In Kirkcaldy, Mervyn King also announced that new £20
banknotes next spring would show the head of Adam
Smith, the first Scot and the first 'economist' to
adorn an English banknote. (I felt some sympathy
with the leader of the Scottish National Party who commented
that Scottish £50 banknotes already carried Adam
Smith's head, which was a reflection of the difference
between Scottish and English values!).
2. CLIMATE CHANGE
2.1 Stern Review on the Economics of Climate Change
I can't pretend to have read all 600+ pages of this
report, published by the UK Treasury on 30 October and
given widespread media coverage - click
here for background and texts. But I have two
brief comments at this stage.
First, the report is important for one simple fact.
Although the Treasury's terms of reference limited the
review to the specific problems of climate change and "the
economics of moving to a low-carbon global economy",
Stern provides confirmation of what many of us
have understood for many years: our present path of
development threatens terminal catastrophe for our species
and many other species on our planet.
Partly because his findings are couched in the jargon
and superstition of conventional economic analysis, and
support tackling climate change as "the
pro-growth strategy for the longer term", Stern has at
last persuaded mainstream professional and public opinion
to accept that effective responses are urgently needed.
For example, on 29 November a local government council
made headlines by rejecting the proposal to expand Stansted
airport. It did so because it took seriously the contradiction
between UK government policy to more than double the
number of airline passengers by 2030 and the need to
reduce carbon emissions drastically.
My second comment is that at least some of Stern's
specific proposals are more debatable. Emissions
trading is an example.
He suggests that three elements of policy are required
for an effective global response. "The first is the
pricing of carbon, implemented through tax, trading
or regulation. The second is policy to support innovation
and the deployment of low-carbon technologies. And
the third is action to remove barriers to energy efficiency,
and to inform, educate and persuade individuals about
what they can do to respond to climate change."
So far so good. But he then identifies emissions
trading as the first of the key elements of future
international frameworks: "Expanding and linking
the growing number of emissions trading schemes around
the world is a powerful way to promote cost-effective
reductions in emissions and to bring forward action
in developing countries: strong targets in rich countries
could drive flows amounting to tens of billions of
dollars each year to support the transition to low-carbon
Despite Stern, and despite the fact that carbon emission
trading has been put at the heart of international schemes
like the Kyoto protocol, an overwhelming case can be
made against them, compared with the two alternative
approaches - tax and regulation. See the following item
at 2.2 - click
here to find previous references on this website
to the corruptibility of 'carbon trading'.
However, the main sequel to the Stern Report so far
as been its overshadowing by the Chancellor of the Exchequer's
Pre-Budget Report to Parliament on 6th December. His
environmental proposals were widely seen as disappointing,
and Sir Nicholas Stern announced his retirement from
the Treasury the following day.
2.2 Carry on Polluting
article was published on 2 December 2006 in New
Scientist. Its author, Larry Lohmann of the Corner
House, edited Carbon Trading: A critical
conversation on climate change, privatisation and
a report published on 28 September by the Dag
Hammarskjold Foundation in partnership with
Group for Climate Justice and the Corner
The message is that emissions trading schemes don't
These privatising schemes are based on giving big
polluters a free share of the Earth's capacity to absorb
carbon. The result is that the polluters are
positively rewarded and encouraged to carry
on as before. "Under EUETS (the European Union's
Emissions Trading Scheme), some of the worst greenhouse
offenders, such as the German utilities group RWE,
have earned hundreds of millions of euros in windfall
profits just for pursuing business as usual".
Letting them buy cheap 'offset' credits from
energy projects in developing countries makes matters
worse. It not only encourages the big industrial polluters
to continue polluting; it has also damaged energy
efficiency projects in developing countries.
"There are better ways
of tackling climate change than by privatising the
Earth's carbon-cycling capacity. Public investment,
shifting subsidies away from fossil fuels and toward
renewables, conventional regulation, support for the
work of communities already following or pioneering
low-carbon ways of life, requiring that businesses
pay the costs their competitors incur in developing
green technologies - all these are
stronger and more direct ways of bringing about the
structural change required."
The report was published as a new issue
of the Dag Hammarskjold Foundation's Development Dialogue,
and as the second report of the What
Next project - which will interest readers
of this newsletter who don't know of it already.
2.3 A Better Alternative
Here is a summary of a better alternative outlined
by Paul Metz in his recent newsletter at www.integer-consult.com:
- skip all investment in temporary solutions,
like 'clean' coal, 'safe' nuclear power plants, and
growing liquid biofuels instead of food
- instead invest all available capital - human,
financial and governance - in real, definitive solutions like
- energy demand reduction
- phase-out the production and use
least fuel-efficient 50% of existing car models
- heavily tax cheap aviation
- subsidise the transition to non-commuting
work systems and permaculture-based food
- set strict and dynamic - innovation provoking
standards for buildings and appliances
- at the same time invest only in new power
generation capacities that use 'eternal' sources,
like sunshine, wind, waterflows and geothermal
and introduce legislation to facilitate and enforce
- use the deserts, coastlines and rivers and
- integrate global water, energy and food supply.
3. TOWARDS A RECONSTRUCTED MONEY SYSTEM
Other parts of this newsletter, particularly the book
reviews in section 4, bear on the need to understand
how the system of money works now and how it should be
changed. Here are some specific recent developments.
3.1 Monetary Reform
3.1.1 The American
Monetary Institute held its annual
conference in September in Chicago.
The texts now available on its website of a draft American
Monetary Act, a pamphlet introducing that act,
and a draft Monetary Transparency Act are notable
steps towards legislation to implement monetary reform.
A story is unfolding here of potentially great significance.
in its October 2006 issue the transcript of a lecture
(see following paragraph) by Alistair McConnachie on
3rd October in Dublin as part of Feasta's course
on 'Understanding the Economics of Sustainable
'Stopping the Debt Driver: Why Reforming
the Way our Money is Created Holds the Key to Halting
Unsustainable Growth' was very timely. What
a pity Sir Nicholas Stern (2.1 above) was unaware
that 95% of the money we use is now created as profit-making
debt by commercial banks, which helps to compel the
poor and encourage the rich to turn the resources
of the planet, including its limited capacity to
absorb carbon emissions, into money as fast as we
You can order
DVD (47 minutes) from Canada on 'Money
as Debt' (£10 a copy including p+p) from Prosperity UK (contact
One of the aims of its creator, Paul
Gignon, is to show environmentalists and
advocates of social justice that monetary
reform is essential to the causes they hold most
dear. I have a copy, and recommend it as a good way
of spreading the word.
3.1.3 The Money
Reform Party offers
a political opportunity "to educate the British
people and their politicians about the money system
and to campaign for the abolition of a money supply
that is created by the private banks". The damaging
results of the present "crazy" system "could
be very easily remedied, if a publicly-owned body,
such as the Bank of England, was responsible for creating
ALL of Britain’s money, and if this money was
spent into circulation as part of the government’s
normal spending pattern". Further information
Threatens the Future is a very interesting
blog article. Thanks to Peter Challen
of the Christian
Council for Monetary Justice for circulating
its internet address.
Income Studies is a new journal launched
in August by the Berkeley Electronic Press. Its editors are Rafael
Pinilla-Pallejà (Ministry of Public Affairs,
Spain), Jurgen De Wispelaere (Trinity College
Dublin), and Karl Widerquist (University of
The launch of this first peer-reviewed journal devoted
to basic income and related issues of poverty, relief
and universal welfare indicates the steadily growing
importance of the subject to academics and the wider
3.3 In Down to Earth Economics in
the Autumn 2006 issue (No. 34) of Soundings,
Professor Mary Mellor (see Item
5 in Newsletter No 10, July 2006; click here
to contact her) identifies a "clear
need for an
approach to economics that combines both socialist and
green insights": on the one hand, a recognition
of ecological limits can strengthen the socialist critique
of capitalism; and, on the other hand, "green economics
without a socialist analysis has no argument to offer
against.. the kind of thinking that in the UK makes common
cause between aristocrats [e.g. Prince Charles] and greens".
To simplify greatly, she refers to LETs, time banks,
local money, and co-operatives and other forms of personally
directed work as ways that point towards how a sustainable
economy might be organised.
But she concludes that they cannot challenge the dominance
of the market economy which is typified by the
- over 90% of the money value of trade
is now the value of trading money itself
stock market trading is the trading of existing
financial assets, with only about 5% reflecting new
Her paper identifies two major concerns about the
current way of issuing money. First, this money
is a national resource and how it is put into circulation
should at least be under democratic control. Second,
the way the newly issued money is spent helps to determine
the priorities of the economy.
The following are among the specific points Mary Mellor
- should new money be subject to interest or issued
- should it be issued as a Citizen's Income?
- could it be used to intervene in the housing
market, since "housing debt represents the
vast majority of new money issue"?
- could it be used to link housing and pensions,
since mortgages and pensions now contradict one another,
with inflation benefiting mortgage debtors but penalising
4. BOOK REVIEWS
4.1 Fred Harrison, RICARDO'S
LAW: Why Tony Blair's Project Failed: House Prices
and the Great Tax Clawback Scam, Shepheard-Walwyn,
2006, 314pp, £18.95, hardback.
One of the questions underlying this book is:
"What is the agenda beyond Blair? Blair
intuitively understood that coming to terms with
market economics was imperative, but he could not
formulate the rules that
would define the relationship between the individual
and the state, the public and the private sectors" (p210)....The
key concept is the obligation to pay
for the benefits one receives (p213)."
Harrison explains how the present relationship between
the individual and the state, and between public and
private sectors, conceals the fact that certain groups
in society avoid paying for the benefits they receive:
- public spending - e.g. on roads, railways,
schools, hospitals, housing, etc - makes a major
contribution to rising land values;
- rising land values benefit house-owners and other
property-owners, rich ones more than poor ones,
in rich locations and rich parts of the country more
than poor ones; but they hurt people who rent
their properties and have to pay rising rents;
- taxpayers' money - which finances public
spending - is thus channelled behind the scenes (by
stealth or ignorance?) from poor to rich people
and from poor to rich parts of the country;
- for many reasons this is economically damaging as
well as unfair and socially perverse;
- one reason is that public revenue is now raised
mainly from 'distortionary' or 'deadweight' taxes on
things like earnings, profits and value added;
because of the disincentive effects of this, the
UK Treasury estimates the resulting loss in economic
wealth-creation to be 30p for every £1
raised by taxes; that would have meant a loss
to the British economy of £138bn in 2005/06
- another reason is that
it is always easier for rich people and
companies than poor to find ways to avoid paying
Along with Harrison's two other recent books (see Newsletters No
9 and No
7), this one makes an overwhelming case
for treating land values as a major source of public
revenue, with equivalent offsetting reductions in
today's economically damaging taxes.
If the government were to carry out its revenue-raising
function intelligently and fairly by replacing the revenue
from more damaging taxes with revenue from land value
taxation (LVT), the changed price structure would
enable the market economy to operate more freely and
efficiently. That would go far to eliminate some
of the problems that conventional economists now call 'market
It would clear a way forward on many important social
and economic problems that conventional politicians,
government officials, economists, social scientists,
and other academics and commentators have found themselves
impotent to resolve.
That includes thinktanks. Among Harrison's targets
is the Joseph Rowntree Foundation (p137). It's
founder's aim was, in today's soundbite, to 'make
poverty history'. But his foundation has failed
to respect his explicit written emphasis in 1904 on "the
supreme importance of questions connected with the holding
and taxation of land", and has ignored his instruction
that large sums could appropriately be spent on collaboration "with
competent investigators and workers upon these questions".
Now for a couple of reservations. In spite of Harrison's
store of fascinating, wide-ranging references to history,
political philosophy and current political concerns,
he doesn't bring out the relevance of his theme to
related issues like green taxation and climate change (see
Item 2 above). That's a pity.
In terms of basic principle, the rule that
everyone should pay for the value they enjoy from common
resources applies more widely than just to owners of
land. Like land, the environment's capacity to absorb
carbon emissions is a limited resource, from which rich
nations and businesses and individuals now profit extortionately.
In terms of tactics, failing to get it across
that the case for LVT has a common ethical base with
the better understood case for green taxation is to miss
I hope Fred will also forgive a small niggle about £23.5
trillion. He calculates (p257) that the proposed shift
to LVT would help the British economy's gross domestic
product (GDP) to grow to £23.5 trillion in 100
years' time, which would be £14 trillion more than
without that tax shift. I doubt if this will persuade
many people to campaign for LVT. Does anyone think it's
possible to forecast GDP 100 years ahead? More to the
point, does anyone expect that endlessly maximising
currently measured GDP will still be accepted then as
a meaningful objective?
In spite of those reservations, I enthusiastically
recommend this book. Apart from everything else, it makes a
splendid read and a wonderful quarry of relevant information.
I have pencilled reminder notes to myself on many pages
of my copy.
I should perhaps add this postscript. My own
view is that land value taxation will
certainly be one, but only one, indispensable part
of the wider reconstruction and development of the worldwide
money system needed for a sustainable world - see
the first, third and fourth items on this website's Articles
Active citizens need to insist that the framework
of money values and incentives created by governments carrying
out all their own main financial functions -
for providing the national money supply and for managing
public spending, as well as for collecting public revenue
- is designed to bring democratically approved economic,
social and environmental strategies into harmony with
one another, not lead to conflict between them.
4.2 Bruce Nixon, LIVING
SYSTEM: Making Sense of Sustainability, Management
Books, 2006, 184pp, £14.99, paperback.
To pick up on my niggle above about GDP, it's good
to see that Bruce
Nixon questions "the myth of Gross Domestic
Product as a measure of progress" and doubts if
it helps to meet human needs in a sustainable way (p108).
The need for alternatives to GDP is one of many
practical points in his courageous and perceptive
It's courageous because, as a consultant with a business
background in human resources and management development
in the Caribbean, North America and the UK, Nixon
is publishing the book, like his last two, in a 'Leadership' series with
Management Books; and, although business managers should see
themselves as leaders concerned with creating a better
world, timidity could tempt them to shy away from his
message that the present values of business must change
radically. I hope not.
His book speaks, in fact, as much to people not in
management as to people who are. Its "final challenge
is to everyone: realise we are all leaders and
can take our power in changing the world...
Discover your purpose - why you are here. Follow your
heart! Your passion will be your source of energy".
It discusses business as a major source of good
and harm, making sense of globalisation,
and the present crisis of confidence for big business
and political leadership. At the root of the crisis
are values, including the need for a better
balance of male and female energies (pp93-99),
and what to do about psychopathic and narcissistic
leaders "who suffer from toxic masculinity that
leads to war, the conquering of new markets, and the
destruction of the earth" (Jane Fonda).
It's good to see a book of this kind recognising that
many aspects of the way the man-made money system works
today are obstacles to the urgently needed shift to a
new ecologically and socially sustainable path of development
And I liked the relevant little rhyme by Hans Blix:
"The noble art of losing face will one
day save the human race."
Living System puts forward a new agenda for
the 21st century, and suggests how to change
things for a better way of living for everyone.
Summing up, its last chapter lists strategic priorities for
global, national and local government and big business,
and 35 practical "actions for individuals like
you and me". Those range from "Reduce,
reuse, recycle and repair" through "Think
before you drive or fly" to "Follow your
heart, know yourself and live in a way that reflects
The book prompts a number of points that could be
further discussed and debated, e.g. on matters
of strategy and tactics.
For example, will it really always be best to proceed
step by step, starting with small changes,
creating common ground and not focusing on issues
where there is major disagreement (p115)?
Won't it sometimes
be necessary to grasp the nettle, and override
or outflank opposition from people and organisations
whose financial interests, career prospects or psychic
investment in self-esteem are inextricably bound
up with the status quo, and who will suffer badly
from the shift to a better future?
The paradigm to be shifted runs so deep and wide that
shifting it will affect almost everyone. Although enlightened
leaders must try to bring along as many people in the
world as they can, even gifted and committed "servant
leaders" (pp121-122) will not be able to wait for
ever in order to avoid some of us feeling betrayed by
what we are being asked to give up. Jesus didn't get
the money-changers to agree to leave the temple; he threw
4.3 Herbert Girardet, CITIES
PEOPLE PLANET: Liveable Cities for a Sustainable World, John
Wiley and Sons, 2004, 304pp, £24.99,
Herbert Girardet is an internationally recognised
authority on a sustainable future for cities. Among
his many clients as a consultant have been UN Habitat
and the cities of London, Adelaide and Vienna. He is
a visiting professor at a number of universities. He
has a long list of books and other publications to
Currently he is helping to plan the world's
first purpose-built eco-city - Dongtan, in China
here for details).
The Shanghai Industrial Investment Corporation (SIIC)
has commissioned Dongtan to be built in the Yangtze
River Delta on an area three-quarters the size of Manhattan
By 2010 it will be a city of 25,000 people;
by 2030 the population will reach some 500,000. It
is designed to be a beautiful and truly sustainable
city with a minimal ecological footprint - a template
for future urban design. As China is planning
to build no less than 400 new cities in the next
twenty years, its success is of crucial importance.
Girardet's book is clearly a 'must read' for
anyone professionally concerned or personally interested
in urban planning and management. That should be
a lot of us, at a time when, on the one hand, further
continuing worldwide urbanisation on a massive scale
seems inevitable and, on the other, it is urgently
necessary to limit consumption and destruction of the
world's natural resources.
The main questions the book explores are (p3):
- can a world of ever-larger cities be sustainable -
environmentally, socially and economically?
- can cities continue to prosper if they significantly
increase their resource productivity?
- can they mimic natural ecosystems and transform
themselves into circular, not linear, systems?
- how can we create cities of physical beauty,
social diversity, and cultural vigour that are
also sustainable economically and environmentally?
- how can we put the pulsing heart of conviviality back
into our cities?
Three fascinating historical chapters about cities
from prehistoric times to the present are followed
by chapters on globalisation and megacities, cities
as ecotechnical systems, transport, liveable cities,
solar cities, zero waste, using water efficiently,
and relearning urban agriculture. They lead up to the
last chapter, 'Building Ecopolis'.
Girardet's upbeat conclusion is that "if
we get things right in the coming years and decades,
cities will become the beacons of a culture of sustainability".
The evidence assembled in the book shows that "we
can create a revolution in urban problem solving -
for the benefit of city people themselves as well as
to reduce their impacts on the world. A wide variety
of innovative approaches to urban planning and management
are available to us".
However, it is a bit disappointing that the
book's index contains no reference to money, taxation,
public spending, subsidies, banks or investment.
There are just two short references to London's congestion
charge; and a rather longer summary of how three cities
- London, New York and Tokyo - now have unprecedented
power as global financial centres, with others such as
Hong Kong, Singapore, Seoul, Taipei , Shanghai and Mumbai
coming up in the second rank.
Surely the future sustainability of cities will
depend on changes in how the worldwide money system
works. Otherwise continuing to fail to tax land
values, and continuing to allow banks to create new
money for speculative property investment, will continue
to fuel the rise in city land values. This will continue
to promote a self-reinforcing cycle of ever greater
wealth concentration in big cities at the expense
of other places. Won't that frustrate sustainable
development both in cities and elsewhere too? Won't
that have to be changed?
The Old Bakehouse, Cholsey
Oxon OX10 9NU, UK
Tel: +44 (0)1491 652346
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