In Progress and Poverty, George examines various proposed strategies to prevent business depressions, unemployment and poverty but finds them unsatisfactory. As an alternative, he proposes his own solution: a single tax on land values. George defines land as “all-natural materials, forces, and opportunities,” as everything “that is freely supplied by nature.” George’s primary fiscal tool was a land value tax on the annual value of land held as private property. Wikipedia
Henry George understood that giving the things “freely supplied by nature” a value independent of their use leads to poor economic outcomes. The things freely supplied by nature are also known as the commons. George’s solution was for a community to charge people who used the commons (land) a tax based on the value of the commons they used.
Thomas Piketty in Capital in the 21st Century argues that the rate of capital return in developed countries is persistently greater than the rate of economic growth and that this will cause wealth inequality to increase in the future. To address this problem Piketty proposes redistribution through a progressive global tax on wealth. Wikipedia
Piketty observes that the maldistribution of capital causes wealth inequality and in turn wealth inequality reduces economic growth and leads to instability. He, like George, argues for redistribution through a tax.
Both George and Piketty observed systems that produced inequality of wealth distribution and both propose a fix after the problem has occurred. The fix is to redistribute the wealth via taxes and coercion after the maldistribution.
Commoning
Commoning is another approach to inequality and maldistribution of resources.
The act of commoning draws on a network of relationships made under the expectation that we will each take care of one another and with a shared understanding that some things belong to all of us — which is the essence of the commons itself. The practice of commoning demonstrates a shift in thinking from the prevailing ethic of “you’re on your own” to “we’re in this together.” — On the Commons.
Both Georgism and Commoning try to stop the monetisation of some community assets. Monetising assets is a technique to extract the value of future use of an asset and take it out of the commons before it creates wealth.
Community Wealth
There is another approach to distributing the value created from the use of any asset. The method is to implement systems that only extract wealth from an asset after the asset creates wealth. It does this by stopping money from generating more money simply because time has passed.
Interest, capital gains, dividends and other derivations of money are mechanisms for money to generate money. Their purpose is to give savers of money a reliable way to receive a return on investment. Unfortunately, they also provide a way to receive a return before the investment gives a return.
One way to ensure that an investment gives a return is to pay investors by giving a discount on the products or services produced from the investment. The approach is easy to implement as it a local adaptation of the existing financial and social infrastructure. Existing systems remain intact but local adaptations eliminate the extraction of future wealth before it occurs.
Assets have a future value from the sale of the goods and services the assets will produce. Ownership of an asset entitles the owner to the value of the goods and services of the asset. When the future output of an asset is sold the future value goes with the sale. When the asset is sold little by little some of the future value transfers to the buyer.
The approach costs less to operate than the existing financial system.
The Financial System
The financial system is a predictive system that guesses the future and then tries to ensure the guesses turn out the way expected. For example, a loan is given. The loan is expected to generate wealth and the wealth generated will be returned to the person who gave the loan. The financial system tries to ensure this happens. Generally, it works but at a great cost and only in a trusting community or a community with heavy penalties for failure to return investment funds.
We can reduce costs by still making guesses but start with the assumption that the guesses will be wrong. When the guesses turn out to be incorrect we have non-coercive ways to adjust the system under previously agreed on rules to satisfice all the parties. The approach uses complex adaptive systems technology and works when there are people who mutually agree to adjustments. Those who do not follow the rules are excluded from the group. It removes most of the costs of the inflexible existing financial system while using most of the same systems.
Examples
There are many ways of removing the time value of money and giving investors returns. One way is mutual credit. A variation on mutual credit is prepayments for a given service within a local community. It turns money used for the service into a local money commons. The approach is scalable using a distributed fractal approach.
The approach allows Henry George’s insight to be realised for small groups for any type of Capital investment. See a further description at Community Capital.
