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New Century EconomicsThe ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. John Maynard Keynes, General Theory of Employment, Interest, and Money
Introduction Unemployment and Citizen's Income Resource Taxation Book List Return to Forums The National Investment Fund Inflation and the Quest for Stable Prices Summary of Proposals Discussion
This text draws on elements of a plan for sustainable prosperity presented by James S. Albus in
In addition, the group has investigated the principle of capturing for public revenue the economic rent of unimproved land as a replacement of taxes levied on all forms of socially beneficial activity.
IntroductionMost economic ideas in currency today were crystallized in the 19th century or before. In those days people were important because they were economically productive. Most work had to be done by human hands. Machines in use then were crude and inefficient and required large numbers of workers to operate them. Investment in new products and new industries produced large numbers of new jobs. Today, in contras, investment is enormously labour-saving. In fact, the main benefit from investment in industry and business lies in the reduction of labour costs.
In this new century people will continue to become less important in terms of their direct contribution to wealth creation. Machines, and a narrow band of experts designing, making, and managing them, will be displacing the average citizen from their role as economic producers.
In this world the basic social danger to be avoided is the loss of respect for the individual when they are not economically useful (Jay & Stewart, 1987). The proposals presented in these introductory papers have the effect of establishing a new relationship between society and the individuals composing it. People are to be regarded as important because they are people and not only because they are useful in an economic sense.
Why New Century Economics?As the 21st century dawns, we face increasing national and global uncertainties arising from mass unemployment, ecological abuse, breakdown of family and community life, increasing crime and poverty. What are the causes? What are the solutions?
The papers presented here suggest that a fundamental reviewing of economic thinking is essential if we are to answer these questions. They represent the efforts of a group of people to bring together the best insights from many sources in a synthesis and show a way forward that could lead to economic security and well-being for all. We hope the ideas and proposals will interest you.
There are several elements contributing to the suggested solution; each one is necessary but is not sufficient on its own:
Citizen's Income for a fair distribution of the benefits of technology;
- Resource Taxation to raise adequate public revenue without penalizing creative enterprise and to ensure responsible and sustainable use of 'natural capital';
- National Investment Fund to ensure that technology remains efficient and ecologically sound;
- Demand Regulation Policy to keep production and demand in balance by smoothing out the effects of time-lags between the two.
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Unemployment and Citizen's IncomeCitizen's Income is a guaranteed source of income paid to everyone irrespective of whether they work at a job or not. It would be paid as an unconditional right and be designed to cover at least all essential needs.
What can be done about unemployment? As human labour is gradually replaced by machines and other means of production, the economic wealth base is growing larger every year. Fewer and fewer people are benefiting from this. A recent study (Townsend, 1996) found that the gap between the rich and poor has never been wider, most especially in the UK. So how can we distribute the benefits of economic growth efficiently and fairly when the economy no longer needs everyone to have a job?
Everyone needs an income! Since every individual has the right to life, they must also have the resources to support that life. Until thirty or forty years ago this was believed to have been satisfied by the breadwinner having a job. His sense of self-worth, as well as the right to an income, were said to be recognized in the workplace. But, increasingly, the effort required to produce wealth is delivered by machines, resulting in fewer jobs. Consequently we need to find new ways of enabling people to obtain their livelihood, and of valuing people as human beings independent of the work they do.
What is the solution? The solution to the problem of both unemployment and the fair distribution of wealth lies in the payment of a Citizen's Income (CI). It would be a base-income, paid by right to every citizen, regardless of whether they had a job or not. It would also provide a morally justifiable and politically feasible alternative to the present benefit system.
Can we afford to pay Citizen's Income? Careful calculations, carried out by O M Ephraim and others (Ephraim 1994; Robertson 1994), have demonstrated that a considered reorganization of the existing benefit and taxation system could provide adequate resources to pay a basic income to all without increasing the burden of tax or national insurance contributions.
There are also some more thoroughgoing ways of structuring and funding this vitally important social reform. A school of economic thought under the title of Binary Economics underpins the concept by demonstrating that most wealth is created by productive capital assets. Such income generating assets are owned today by a relatively small minority of people. Binary economics seeks to extend this alternative way of securing income to the general population and provides a firm theoretical basis for the necessary legal and financial changes.
In recent years binary economics has been developed to cover the use of interest-free loans for the development and spreading of all forms of productive capacity. Some examples of these are micro-finance (e.g. poor Bangladeshi women), tidal barrages for clean electricity generation, public capital projects such as bridges, hospitals, roads, and interest-free loans for students. Through its capacity to foster fairness and justice in economic matters while ensuring efficiency through market principles, binary economics is of appeal to all cultures and major faiths and people of good faith.
What would be the benefits of Citizen's Income?
- It would protect everyone from economic and social uncertainties;
- provide a base-line income for all;
- set, in effect, a minimum wage;
- offer individual choice for employment or increased leisure;
- open up greater opportunities for social participation.
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Resource TaxationResource Taxation is a form of tax levied on the use of basic natural resources, such as land, water and minerals, energy, etc., which could replace income tax and other forms of tax.
The basis of taxation today. In most countries tax is levied through a variety of mechanisms. These taxes are used to pay for goods and services considered necessary to protect, or enhance, the interests of the whole community. The common basis for taxation is labour and the exchange of goods. In Britain today if you have a paid job you pay a proportion of your earnings in tax through a Pay As You Earn (PAYE) system. Many commercial transactions, such as buying household goods, are also liable for tax (VAT), businesses pay tax on their profits, and shareholders on their dividends.
The present tax system discourages the creation and distribution of wealth. Taxing work and investment through income tax penalizes human effort, and acts as a disincentive to further investment. Consequently, many people feel the tax system to be unfair. It is also proving to be an inadequate way to raise public revenue.
Natural resources as the basis of taxation. Land, minerals and water are major factors in wealth creation. Since no individual had to work to create them, natural resources are, in a very real sense, gifts of nature given equally to the whole community. It is therefore suggested that the use of natural resources forms a unique and obvious basis for taxation. This very simple and fair principle has come to be known as Resource Taxation.
How does Resource Taxation work in practice? When people use land for either personal or commercial purposes, then the community is entitled to charge them for the use of these common resources. The level of these charges would be set by the community, and the income used to meet public needs. Income tax, VAT and all other forms of tax could be abolished and Resource Taxation would replace them.
What would be the benefits of Resource Taxation?
- it would raise the incentive to work and investment
- it would minimize land speculation and explosive rents
- it would ensure that resources were used ecologically and economically
- it would be fairer, simpler and cheaper to administer than the present system
- it would enable society to fund adequate welfare, education and health for all
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A National Investment FundTo meet society's need for more long-term, socially useful investment, it is proposed that a National Investment Fund be established which would have the same power to create credit as the private sector banks.
Money and wealth - are they the same? Money is an artificial medium to enable people to exchange real wealth - such as food, raw materials, etc. - in a convenient way. Money facilitates the creation and distribution of wealth, but is not wealth in itself.
Credit and the banks. Increasing numbers of financial transactions today take place using various forms of credit, such as credit cards or overdraft facilities, rather than by the use of money itself. Banks are legally permitted to lend between 10 and 13 times the value of the actual deposits of cash they hold on behalf of their customers. This additional credit effectively creates additional money - money which is brought into being simply by the stroke of a pen or the click of a computer keyboard. Banks are then able to charge interest on this artificially manufactured money.
The need for increased national investment. The private sector banks currently monopolize the enormous revenues that accrue from interest charged on money created in this way. Nevertheless, the motivation to maximize private profit fails to adequately meet society's investment needs. This is because private sector investors tend to prefer short-term pay-back times on their investments, while society as a whole often needs to finance long-term socially useful projects, such as public transport, sewerage/waste disposal systems and other infrastructure development. Private sector investors are also often reluctant to take risks on new ideas and inventions even when these might provide enormous social benefits. It is well known that many remarkable inventions flounder because they fail to attract support from private sector investors.
A National Investment Fund. It is suggested that a National Investment Fund be created which would have the same power to create credit and charge interest on it as the private sector banks. This agency would be empowered to invest money, particularly in long-term, socially valuable, or innovative new projects. The interest it would earn on its investments could benefit the whole community.
NB. This section and the one that follows is an adaptation of proposals by James. S Albus in People's Capitalism. the full text is available online.
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Inflation and the Quest for Stable PricesStable prices could be guarantied by the creation of a Demand Regulation Policy (DRP). It is suggested that the DRP would be administered by the National Investment Fund.
What is inflation? Inflation occurs when the same amount of money buys less today than it did yesterday. It is usually the result of an increase in demand for goods without a corresponding rise in their supply. To expand supply requires increased investment. This goes into building new factories and buying new plant and machinery. Wages are paid to those building the factory, and manufacturers are also paid. Their money goes straight into the economy, and results in an immediate increase in demand before the new goods have been made. The extra demand, without a corresponding increase in supply, produces a rise in prices.
How is inflation controlled? Inflation is usually controlled by raising interest rates, which makes it more expensive to borrow money. The result is a serious discouragement to investment, fewer new businesses are created and old ones cannot expand. The economy then becomes stagnant and unemployment increases.
Is inflation inevitable? A stable economy could be achieved through a Demand Regulation Policy. At times of inflationary pressure the National Investment Fund would be empowered to hold back payment of the interest on its investments. This money would be put in savings bonds for each citizen and would be made gradually available to them as inflationary pressures in the economy eased.
What would be the benefits of DRP?
- It would create an inflation-free economy, maintaining the value of purchasing power
- Income would not be reduced through taxation but part of it would be converted into temporary savings.
- Consumer power would be deferred but not permanently reduced
- The DRP would maintain the availability of investment capital
- Investors would be able to plan for the long-term future with the assurance that prices would remain stable
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Summary of Proposals
- Replacement of all forms of taxation with a single tax on land and other natural resources.
- Payment of a National Citizen's Income unconditionally to everyone.
- Creation of a National Investment Fund.
- Control of inflation with a Demand Regulation Policy.
Who would benefit from these proposals?Everyone would for the following reasons:
- Abolishing income tax would remove the penalty on productive activity. The land and energy levy would raise the revenue to fund public spending and Citizen's Income and would encourage the best use of natural resources.
- Payment of a national Citizen's Income would generate the following benefits:
- protect everyone from economic and social uncertainties;
- provide a baseline income for all;
- offer individual choice for employment or increased leisure.
- The National Investment Fund would help finance socially useful investments and share the power to create credit with private sector banks.
- A Demand Regulation Policy would control inflation and stabilize prices
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New Century Economics
Peoples' Capitalism - The Economics of the Robot Revolution
James S Albus, New World Books, 1976
Binary Economics - the new paradigm
Robert Ashford & Rodney Shakespeare, University Press of America 1999
Income and the Welfare State- Essays on Britain and Europe
A B Atkinson, Cambridge University Press, 1995
The Economics of the Welfare State
Nicholas Barr, Oxford University Press, 1993
Citizen's Income Bulletin
Quarterly from Citizen's Income Research Study Centre, St Philips Building, Sheffield Street, London WC2A 2EX
Resource Economics - An Engineer's Approach
Owen M Ephraim, 50 New Road, Great Baddow, Chelmsford CM2 7PT, 1994
The Corruption of Economics
Mason Gaffney and Fred Harrison, Shepheard-Walwyn, 1994
Reasons for Welfare - The Political Theory of the Welfare State
Robert E Goodin, Princeton University Press, 1988
Power in The Land- Unemployment, the Profits Crisis and Land Monopoly
Fred Harrison, Shepheard-Walwyn, 1983
New Iniquities- The Changing Distribution of Income and Wealth in the United Kingdom
John Hills (ed.), Cambridge University Press, 1996
A Philosophy for a Fair Society
Michael Hudson, G J Miller & Kris Feder, Shepheard-Walwyn, 1994
Apocalypse 2000 - Economic Breakdown and the Suicide of Democracy
Peter Jay and Michael Stewart, Sidgwick & Jackson, 1987.
The Nature of Society
Leon MacLaren, School of Economic Science, c.1935 (reprinted 1992)
Instead of the Dole- An Inquiry into Integration of the Tax and Benefit Systems
Hermione Parker, Routledge, 1989
Social Power and the Labour Market - A radical approach to Labour Economics
David Purdy, Macmillan Education, 1988
Benefits and Taxes - Discussion Paper for a Radical Strategy
James Robertson, New Economic Foundation, 1994
Land and Taxation
Nicholaus Tideman (ed.), Shepheard-Walwyn, 1994
A Poor Future
Peter Townsend, Lemos and Crane, 1996
Real Freedom for All- What, if anything, can justify capitalism?
Philippe Van Parijs, Clarendon Press, 1995
Arguing for Basic Income- Ethical Foundations for a Radical Reform
Philippe Van Parijs (ed.), Verso, 1992
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