The economic ideas of Henry George, the bank crashes and the speculation frenzy in Melbourne in the 1890s influenced the founders of the Commonwealth. They determined not to let banks fail through speculation in the newly created Commonwealth of Australia. Part of their solution was to form the Commonwealth Bank and the leasehold system of Canberra. Both started well but have become part of the current economic problems.
The States wanted the profits from the increase in land values to pay for the development of Canberra. The consensus was to introduce the leasehold system and turn existing farms into leases. When the lease conditions changed, the extra value went to the Commonwealth to spend on Canberra, not to the leaseholders, and the lease costs increased by increasing land tax to match the increase in the value of the land caused by other people living nearby and the facilities they and the government provided.
Unfortunately, it never really worked. People found ways to buy land leases, wait for the land value to increase, and then sell them. Others paid little for the lease conditions to change. The ACT government has become a speculator and now sells leases for more than the development cost. The government leaves it up to the people who leased the land to provide the infrastructure that makes it valuable.
The leasehold system cannot solve the problem because there are too many ways to bypass the intent. Henry George’s ideas might have worked if the land was the only cost, but the main costs are the infrastructure costs. These costs are open to speculation, and we now see offices and buildings rented for far more than their cost.
The problem is that we create too much money too quickly through unnecessary loans. The financial system is built on the idea that Capital produces profits and “earns” money. It doesn’t. It is investments that Capital enables that produce the profits. We have built a financial system that rewards those who find ways to create extra unnecessary money rather than those who create cheaper goods and services.
The reason is that investors take all the profits from their investments and do not share them with their buyers. Free Markets are meant to keep prices down, but most modern markets are far from the ideal of free choice by buyers and, in some cases, sellers. Instead of a free choice to moderate prices, a Community can agree on a reasonable profit for sellers, which sets the price. Sellers also agree to half or more of the profit generated by a sale transferring as Capital to the buyer at the time of sale. Critically, the system has a feedback loop of buyers becoming sellers to moderate future price increases.
Community Capital, for a given market of goods or services, removes the ability of money to generate more money. Instead, the assets produced or purchased by the community generate profits. The profits stay within the community to build more assets or maintain existing assets to benefit the community that builds or buys the assets.
Community Capital changes the financial system so communities can invest in new assets without increasing the money supply. It does this by removing the need to monetise assets and borrow money. The approach sets a fair price for goods and services and allows communities to decide on investments by criteria other than price. For example, invest in producing electricity without creating greenhouse gases. With Community Capital, a Free Market will discover the best way to do this at the lowest possible price.
Read more at Free Markets Rarely Allocate Resources Efficiently.
Read the history of the leasehold system here.
The approach works with monopolies as described in A Self-Regulating Efficient Monopoly Market.
