Fwd: March RSF Digest

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Frank de Jong

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Mar 13, 2021, 9:14:17 AMMar 13
to Earthsharing Canada Google Group
Enjoy, lots of great reading, especially my article https://schalkenbach.org/were-not-all-in-this-together-wealth-taxes-vs-lvt/  : )

frank



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The Robert Schalkenbach Foundation (RSF) is a private operating foundation, founded in 1925, to promote public awareness of the social philosophy and economic reforms advocated by famed 19th century thinker and activist, Henry George.

Today, RSF remains true to its founding doctrine, and through efforts focused on education, communities, outreach, and publishing, works to create a world in which all people are afforded the basic necessities of life and the natural world is protected for generations to come.
 
Despotism:
 
noun - a form of government in which power is held by a single person, typically in a cruel, unfair and oppressive way.
 
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A Year of Pandemic
By: Executive Director Josie Faass
 
For many, including myself, this month marks one year since the COVID-19 pandemic began affecting our lives in earnest. On March 13, 2020, my older son descended the bus steps, elated to have (what we believed at the time to be) a full two weeks off from school. I had spent that morning madly dashing between stores, filling carts with the supplies we’d need to get us through up to a month (gasp!) isolating in our home. That was also the day we pulled my then-2-year-old from daycare and my husband let his coworkers know he would be working from home for a bit so we could balance the unbalanceable feats of remaining employed while caring for multiple children unassisted.
 
March 2020 was filled with a sense of foreboding, and in hindsight, a naive optimism that it would all be over as quickly as it began. (I remember looking at the orchid on my windowsill, which had just put out a new flower spike, and thinking, by the time these blooms are done we’ll be back to normal. That plant has flowered three times since that initial lockdown.)
 
 
A calendar year has come and gone and I can’t think of a single person in my life who has not suffered losses to the virus.
 
Globally, more than 2.5 million have died, with over a half million of those deaths in the United States. The numbers are truly staggering, but they fall far short of capturing the true damage of the disease, and not just because they fail to reflect the actual death toll, which is likely higher.

From every one of us, the virus stole time. While we sat in our homes, many of us abiding by guidance not to gather with family and friends, people, like me, lost time with aging parents we’ll never get back; our kids lost summer visits with cousins and games of basketball with neighbors; our coworkers lost their workplace families, and those without families at home found themselves suddenly profoundly alone in a world that felt fundamentally unsafe.

From many of us, the virus stole even more, deepening the divides between the haves and have nots. Lockdowns and social distancing eviscerated the travel and service industries, forcing millions out of work, or putting them in a position of choosing between assuming personal risk of infection and earning a living. The social safety net reacted to a degree with some stimulus money and eviction moratoriums, but many of us are profoundly worse off now than they were when this began. In contrast, those in “non-essential” sectors found themselves suddenly working from home, and unable to spend their income in restaurants, hair salons, and the like, increased their savings or spent on things - like trampolines and kitchen renovations - to make their homes more comfortable and attractive. Suddenly without viable childcare options, many parents - mostly mothers - left the workforce to tend to their most fundamental of obligations, a choice which, research shows, can negatively affect earning potential for a lifetime. And as affluent school districts rushed to activate online learning systems and put chromebooks in every student’s hands, poorer districts floundered, leaving already vulnerable children even farther behind.

A year of pandemic has left us even farther now from the world of equity envisioned by Henry George than we were before, and it can be tempting to feel pessimistic about regaining that lost ground, let alone creating a future in which all people enjoy a basic quality of life. Yet, despite the very real reasons for despair, I don’t feel it. As infection rates fall and vaccination rates rise, we have the opportunity to emerge from this kinder, more able to see our common humanity, and more willing to create a future where all people can flourish. That’s the world I want to see and it’s the world the Robert Schalkenbach Foundation and the Center for Property Tax Reform are committed to creating
 
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Coup Reflections
By: Steven Sklar
 
 
Macroeconomics has remained substantially unchanged since 1971 when gold and the dollar were uncoupled. Whether this pivotal change in the early 1970s was the end of economic sanity or the beginning of a great era of prosperity is a matter of opinion. In any case, half a century later, change is upon us.
 
There isn’t an economist breathing who doesn’t agree that the one-two punch of the 2008 mortgage crisis and the COVID-19 pandemic have rocked, if not cracked, the foundations of conventional economics. These momentous events have opened the canopy for new ideas.
 
Four transformative ideas are now putting economic theology through its paces: Land Value Taxation (LVT), Modern Monetary Theory (MMT), Universal Basic Income (UBI), and Bitcoin (BTC).
 
Not only are these four emergent theories mutually supporting, they are interdependent. MMT cannot be successful without LVT and a UBI. Rental value capture is needed to effectively remove damaging liquidity from inflationary economies and a UBI is the optimal way to inject economic stimulus. As a global reserve currency, BTC is ideal for settling international accounts plus its high stock to flow ratio makes it an alternative to inflation-prown fiat currencies.
MMT explains how central banks around the world have behaved for decades, treating taxation and spending as unrelated. LVT explains how to avoid damping the productive economy and how to prevent QE from quickly capitalizing into the purchase price of land and resources. The two theories work in lockstep.
 
Catastrophic events and disruptive technologies often upset the status quo, re-order the power structure, and change social morays. The decline of the dollar as global reserve currency and the corresponding decline of US military, manufacturing, and financial power has thrown the world into flux, the outcome unknown.
 
What was a slow relinquishing of superiority, the pandemic and global financial crisis have accelerated. MMT is challenging neoliberalism, LVT insists on universal usufruct, UBI aims to make poverty history, and BTC mocks central banks. A century could become a decade.
 
Read Entire Article
 
Relocating? Housing Issues Span the Country
By: Wyn Achenbaum
 

In a recent New York Times article, The Californians Are Coming. So Is Their Housing Crisis, Conor Dougherty delves into the conundrum of growth and housing problems. He points to the current situation in California and the fact that its residents are fleeing the sunshine to a more affordable, and less congested state of Idaho. He poses the question: Is it possible to import California’s growth without also importing its housing problems?

In short yes. The response to the article was mixed. I offered the following:

Suppose a house or condo was not a form of investment, other than paying off the mortgage and perhaps doing renovations. In other words, suppose that as a homeowner, one was not entitled to pocket the increase in land value during the years one owned the house or condo. Suppose that, instead of paying the previous owner for the value of the house or condo PLUS the value of the site on which it sits, one only paid the seller for the value of the house or condo and other improvements (including landscaping).

One would need a smaller down payment. So young people might not always need two incomes to become home owners. One would not need nearly as large a mortgage, and might be able to take on a shorter mortgage, at an advantageous interest rate.
Suppose that one’s annual property tax was only on the value of the land itself, and not on the condo or house and other improvements. Suppose that property tax payment, instead of being an annual payment, was simply a monthly payment. If you needed to move from one metro to another, there would be many more buyers for your house, and you’d be able to move expeditiously. If you needed to move from a less expensive metro to a more expensive metro to take a job that paid you well, you would not be forced to the fringes by a huge down payment. A house or condo of a certain size, style, age and quality would sell for more or less the same amount in most of the country. I think it would solve a lot.

Land value should be treated as our common treasure, collected as natural public revenue, and then distributed more evenly across our society, to meet the needs of all. Children everywhere are entitled to a good education, whether they live in a high-land-value city, or in a rural area. The policy I propose will make it possible for many more of us to choose to live in or near the most interesting cities, for some or all of our lives.
 
Read Entire Article
 
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Benefits of Land Value Tax on New York and Other Major Cities - Part 2

By: Lee Hachadoorian
 
How a Tax Shift Would Affect Low-income and Elderly Homeowners
As stated in Part 1, land value taxation has different effects on different demographics. So, what about low-income homeowners, or elderly homeowners? The effects of LVT on these groups specifically is not well studied, but we can glean insight from research into the traditional property tax. Public finance economists have viewed the property tax as a progressive tax for half a century which has been slow to seep into urban politics and the popular understanding. There are several simple explanations for why the property tax is progressive.
 
Lower income homeowners will tend to pay less tax on the lower value homes that they own, or be unable to afford to buy a home. In New York City, 81% of households earning less than $50,000 are renters.
 
Urban land is the most productive land in the modern economy, and NYC land values are among the highest in the world. New Yorkers are right to be concerned about the impact of skyrocketing property values on long-term residents of the city, and on its most vulnerable populations. Concerns for the impact of property taxes on low-income households contributes to general opposition to the tax, but the primary beneficiaries of low property taxes are the corporations and wealthy households who hold the most valuable urban land.
 
Contrary to common wisdom, the property tax is already a progressive tax. Shifting to LVT or two-rate taxation will do even more to shift the tax onto commercial landowners and high-income neighborhoods, to the benefit of all New Yorkers.
 
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Is It That Hard To Tax The Rich?

By:  Matthew Downhour
 
When the public has lost its appetite for the argument that taxing the wealthy is in some way unfair – a claim which, in the midst of a pandemic that has sharply heightened in equality, falls even flatter than usual – the next common retort is that it is somehow impossible to do. Those opposed to such taxes throw up their hands and sigh. “We’d love to tax the wealthiest among us, but we can’t do so effectively.”
 
A couple reasons are put forth for this: on a state level, there is always the specter of a flight of the wealthy away from high tax states. This has been a popular story to tell about California; as the state sees residents leave, many outside observers have claimed that high taxes have driven them away. California’s tax structure is indeed dysfunctional, but it is in fact lower income Californians who are leaving, indicating that high taxes are top earners are not the primary culprit. Another argument, prominently advanced by D.J. Tice in the Minnesota Star Tribune recently, is that high taxes will be passed down to customers and workers, and in any event will disincentivize the kind of behavior we want from millionaires and billionaires.
 
There is no doubt that in economics, as in life generally, unintended consequences are the rule, rather than the exception. An exploration of tax incidence and incentives is always a crucial part of developing solid policy. But such an exploration is meaningless if the best it can do is warn against any attempt to tax the wealthy. A more careful examination of these issues leads to a near-unavoidable conclusion: taxing land is the best way to align the incentives of the wealthy with the needs of the public, and to collect revenue for the state.
 
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California: A Leader In What NOT To Do
By:  Lee Hachadoorian
 
n early February, Nick Kristof addressed his column, A Letter to My Liberals Friends to his conservative hometown friends in Yamhill, Ore. He urged them to hold liberals accountable while doing the same for right-wing extremists, kooks and charlatans. In that spirit — and with Nick’s cheerful acquiescence — I offer a rejoinder in the form of a letter to my liberal friends.

No, I can’t relax! And no, I’m not worried that the Biden administration is going to send Trump voters to “re-education camps,” impose Cuban-style socialism or put out the welcome mat for MS-13. I’m just afraid that today’s Democratic leaders might look to the very Democratic state of California as a model for America’s future.

People used to want to move to California, start businesses, raise families, live their American dream.
These days, not so much. Between July 2019 and July 2020, more people, 135,400 to be precise, left the state than moved in, one of only a dozen times in over a century when that’s happened. The website exitcalifornia.org helps keep track of where these Golden State exiles go. The number one destination? Texas – although this was before the historic freeze that has occurred throughout February. Next is Arizona, followed by Nevada and Washington. Three of those states have no state income tax, while Arizona’s is capped at 4.5 percent for married couples making more than $318,000.

In California, married couples pay more than twice that rate on income above $116,000. They also pay some of the nation’s highest sales tax rates (8.66%), corporate tax rates (8.84%), and the highest taxes on gasoline ($.63 on a gallon versus $.20 in Texas).
 
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Wealth Tax
 
 
We're Not All In This Together: Wealth Taxes vs. LVT - Point A

By: Frank de Jong 
 
Life’s not fair, but taxes should be. Henry George was livid that labourers and capitalists were rewarded only for their work while landowners received the unearned increment even as they slept. He was flabbergasted that every newborn wasn’t automatically entitled to their portion of the revenue of global commons. If we were all in this together, we would receive an equal share of the bounty of nature as birthright.
 
Most millionaires don’t work for a living. They become rich by securing a monopoly over some aspect of the commons: they get land rezoned, they purchase resource monopolies, or they purchase patents over a scalable technology or pharmaceutical product.
 
Land and resource owners accumulate wealth through privilege, not production, as if on permanent paid vacation. These people are rentiers, capturing unearned income that rightfully belongs to the community.
 
Land and finite resources have value because of the community. They are gifts of nature and their value is community-created. The value upkick belongs equally to all, not exclusively to the present owner. This wrong can be righted, but as Fred Foldvary explains in his counterpoint article, wealth taxes are wrongheaded. Attempting to tax wealth invites evasion and capital flight. Gérard Depardieu is infamous for renouncing his French citizenship and moving to Russia to avoid taxes.
 
If we were in this together the wealth gap would shrink, a basic income would eliminate poverty, and no one would reap windfall profits by destroying biodiversity or by contributing to climate chaos. The silver lining would be that everyone would benefit when entrepreneurialism and employment is no longer burdened by taxation.
 
Wealth taxes are self-defeating and should be avoided, but financing government programs by capturing economic rent is an enlightened policy that acknowledges that those who use or abuse the gifts of nature must compensate the greater community for the privilege.
 
Read Entire Article
 
Why Wealth Taxes Were Repealed in Europe - Point B

By: Fred Foldvary
 
A wealth tax is an example of a policy that has a superficial appeal that dissolves when closely examined or when put into practice. Wealth is anything with a positive market value. Net wealth is wealth minus liabilities. Gross wealth does not subtract liabilities. Wealth can be tangible, such as real estate and jewels, or intangible, such as shares of stocks and bonds.
 
Wealth is widely taxed when it is real estate and when an estate is transferred after death. Some politicians, such as Elizabeth Warren, have proposed a general wealth tax on the rich. Warren has proposed a 2% federal tax on a person’s net worth over $50 million, plus a 1% tax on every dollar in net worth over $1 billion.
 
The problems with general taxes on wealth are economic, moral, and constitutional. The economic problem consists of disincentives, avoidance, and evasion. It would superficially seem that the rich would not miss having a bit of their wealth confiscated. But one does not become rich from not caring about money. One can better understand the disincentive effect by calculating an equivalent tax on the yield of wealth.
 
Instead of directly taxing wealth, it is Constitutional to levy a tax on the purchase of some types of wealth. Such an excise tax was levied in 1991, a ten-percent tax on luxuries such as yachts. The rich responded by reducing their purchase of yachts, airplanes, fancy cars, and other luxuries. The tax contributed “to the general devastation of the American boating industry — as well as the jewelers, furriers and private-plane manufacturers that were also targets of the excise tax,” The tax on yachts was repealed in 1993.
 
Since superficial appeal is stronger than logic or evidence, we most likely have not seen the end of attempts to impose a U.S. wealth tax. As the German philosopher Hegel wrote in the introduction to his Philosophy of History, “What experience and history teaches us is that people and governments have never learned anything from history, or acted on principles deduced from it.”
 
Read Entire Article
 
BOOK REVIEW: Fred Harrison's #WeAreRent
 
By:  Ed Dodson
 
What follows is a sympathetic summary of the first book from Fred Harrison’s new #WeAreRent trilogy. For me, an objective review of the trilogy is not practical, as I have for many years agreed with almost all he has written. One of the great tragedies of our time is that these books are needed at all. What Harrison provides is, to at least some of us, common sense. However, for many others – even those who are well-read or who have a sincere commitment to creating a fair and just world for all – the books will challenge much that they believe to be true about our history. Harrison has surveyed the scientific disciplines for evidence to support his own theory of human cultural evolution and escalating disintegration. His conclusion is that the evidence is plentiful, indeed. He concludes that we are the victims of a spiritual genocide:
 
In Europe, the process began late in the 15th century. That was long enough in the past for the foundation injustices to be expunged from people’s memories. Through a turbulent period of 500 years the free riders systematically worked to curb the critical faculties of rational people. Their crime, the appropriation of the commons, was legitimised and institutionalized as the private ownership of land and Rent. With the passage of that amount of time, what originated as perverse behavior of the rent-seekers, unjust in the eyes of the victims, became accepted as normal. Such society, therefore, is not aware of its psychotic state.

For nearly a half century, Fred Harrison has been an energetic proponent of the systemic reforms called for by the late nineteenth century American political economist Henry George.
 
 Although fully convinced that Harrison had already made the case in his earlier books and articles, Book 1 of the #WeAreRent trilogy is a notable accomplishment. Over the last three thousand years or so men and women with unusual insight into the human condition have shared their insights with us and in the process helped to change the course of history. Henry George’s book, Progress and Poverty, seemed at the time to be one of these rare documents. Millions of copies were sold, read and discussed. As Harrison documents, the lessons continue to be taught to this day if not widely understood or embraced.

Times are very different today. Will Harrison’s trilogy find its way onto the list of best-selling nonfiction books? Will the media call upon him to be interviewed on radio and television? The bottom line is that the public reaction to this trilogy must be both quantitatively and qualitatively different from any book bringing forward these insights since Henry George emerged to lead a too short-lived global campaign to end cheating. I am grateful to Fred Harrison for trying.
 
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Exploring Land Value Tax
 
The Center for Property Tax Reform had an eventful February filled with dialogue, research, and a discussion on Land Value Tax in Philadelphia. Our team extended its efforts by adding the Twin Cities, Minneapolis and St. Paul to our tax shift explorer and identifying new cities in Virginia to add. We have also had conversations with candidates for NYC Council, Evie Hantzopoulos; District 22 and Malik Wright; District 9, along with a continuous discussion with the Dianne for NYC campaign.
 
We also partnered with 5th Square and Philadelphia's former and current councilmembers: Derek S. Green, Maria Quiñones-Sanchez, and Wilson Goode Jr. to address the impact that a Land Value Tax would have on the City of Brotherly Love. We look forward to speaking with more like-minded organizations, advocates, and candidates while expanding our efforts in providing educational webinars, studies, and research in the months to come!
 
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Kansas Screwed Up.  So Can We.
By: Josh Vincent, CPTR Co-Director
 
Remember how Kansas became heaven overnight after they slashed the income tax? Me either.
 
Let’s try again.
Setting the stage for an overhaul of a state tax system requires fiddling at the margins of policy rather than blowing up everything at once. So, much as taxing wages is a bad idea, it takes a long time to get into a bad situation, so it follows that it should take a teensy while to get out.
 
The Kansas "experiment" is a classic Rorschach test. Advocates of robust taxation and government spending observed a fiscal disaster. Advocates for cutting taxes (supply-side acolytes Arthur Laffer and Steve Moore) declared the experiment didn't have time to work.
 
Kansas Redux
That little bit of history ought to encourage caution, but many border and southern states didn't get the memo. There's a plan in Mississippi (yes, the sickest and poorest state in the US) to cut the budget in the 2021 session and introduce an eventual elimination of the state income tax. The chances of a revenue disaster like Kansas? No problem, they'll make up for it by increasing the sales tax, already at 7%, with local options for more.
 
Mississippi has alternatives, which they likely will not explore: property taxes. Mississippi enacted the first sales tax in the nation in 1930. The rationale was to lower property taxes. Lower taxes for who? In the 1930s (and today), the primary landowners have held it mostly for mineral rights, timber, or corporate agriculture. Mississippi's Delta land, which had significant black ownership in the early 1900s, was stolen and is now in gentlemen farmer/developers' hands.
 
Suffice to say; those industries don't need many workers anymore. It's a hell of a place to live. Last year, the progressive mayor of Jackson, Mississippi, tried exploring land value tax. So far, he and his talented staff are stymied at every turn just trying to get property ownership information.
 
And the band played on.
 
 
Read More
 
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Coming this June! Join us for a virtual book launch celebrating the release of The Annotated Works of Henry George: Protection or Free Trade (Vol. IV). The event will include a discussion of the book by its editors and a special keynote by a renowned expert in free trade. More details to follow!
 
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Polito

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Mar 14, 2021, 12:27:42 AMMar 14
to earthshar...@googlegroups.com, Frank de Jong
Superbly written. Very comprehensive and accessible to ordinary readers.

I have a question. Is it fair to say that privatizing money creation is also monopolizing the commons and the form of economic rent?

Frank de Jong

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Mar 14, 2021, 8:18:15 PMMar 14
to Earthsharing Canada Google Group
I had to think about your suggestion, Joe. On the one hand I guess you could say money is part of the commons. But it's not finite (more can be printed) so it's not a land-like asset. Even if more couldn't be printed by the Bank of Canada, it wouldn't attract rent like a resource like gold, like land, like the EM spectrum, like a patent. Rent is unearned revenue, but money doesn't generate revenue by virtue of it's scarcity, so it doesn't generate rent. You can't be charged capital gains (rent) on a currency. Loaning money generates interest but interest is a fee for service, not rent.

Anyone else have thoughts?  f

Polito

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Mar 14, 2021, 8:45:29 PMMar 14
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Good points. But when I look at this part of your excellent article, I think we can include money:
On the other hand, had he polluted the air, had he reaped windfall profits by selling oil, a forest or a mineral, or pocketing the land rent on a vaste estate, then all of this income — above an operating profit — should have been socialized.
A forest in particular is not as limited as land. It can be expanded like our money supply :)  Furthermore like oil, or forests, it is the raw material inventory of business, and they must pay for the inventory. Banks pay a royalty for savings, but they do not pay for their addition to the money supply, since they are the primary producers of the annual increase in the money supply. The Central Bank could charge royalties for the new money, but do not. So having that money 'rent' free is to me an example of unearned income. It is UBI for banks! Furthermore the banks are ultimately responsible for providing the money that is available to buy government bonds. Again they make unearned income on those transactions.  

Banks should be like 'credit unions' or 'savings and loans' institutions. Instead they have acquired the sovereign power of issuing money, and power of the community, of the nation - which loses the seigniorage and its government pays for the funds created out of thin air. 

Joe 

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Polito

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Mar 16, 2021, 8:56:50 PMMar 16
to Frank de Jong, earthshar...@googlegroups.com
Not according to Nobel Prize winner Paul Samuelson - "In some mysterious manner the banks create money out of thin air... Few understand that all our money arises out of debt." 

Not according to Parliament on money creation

 Note according to the Bank of England on money creation Bank of England Quarterly Bulletin 2014 Q1

On Mon, Mar 15, 2021 at 8:50 AM Frank de Jong <fde...@earthsharing.ca> wrote:
Chartered banks only temporarily expand the money supply, till the loan is paid back. Every charge card also temporarily expands the money supply.

The number and size of trees are finite, so they attract rent. 



Erich Jacoby-Hawkins

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Mar 18, 2021, 8:47:32 PMMar 18
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It is VERY important to keep distinct the way that publicly-owned central banks create money (and contrary to what some will tell you, most nations have publicly-owned central banks) and the way that private banks create money.

Central banks create money as debt, but that is soft debt, as it is backed by the national government and all of the nation's assets, and doesn't really ever need to be paid back, as long as the economy continues to grow. In fact, it can be argued that paying it back would be disastrous for the economy. You can say that central bank money is "created out of nothing" but really, it's not nothing, it's the confidence of the citizens (and international investors) in the stability of the issuing state and economy. (Not the specific government - a change of government need not impact confidence in the money supply). There are limits to how much money a central bank can create - or really, how quickly - before it exceeds confidence, resulting in inflation or hyperinflation.

Private banks create money as debt in exchange for a collateral claim on some private asset, which could be a real (physical) asset or a financial asset or even a future (expected) stream of income. This debt is continually being repaid (and the repaid debt money destroyed), which is fine as long as new debt money is also being issued to other people in a cycle. This cycle generally grows at least at the rate of the economy and ensures there is enough money in circulation for economic activity to happen.

It is a bit inaccurate to call private money creation "out of thin air" because, presuming a normal level of regulation, chartered banks can only create as much debt money as there are borrowers willing to put up collateral. A bank can't create this money without a willing borrower, and regulations limit how much can be created or how to value various forms of collateral, and how much overall debt a bank can hold (thus how much money it can create). Private bank money creation is actually conversion of one kind of financial asset into a more liquid asset. This ties down the collateral - which is certainly NOT thin air - and prevents other money being created from that same collateral (legally).

Interest is a service fee and also a risk fee, because every time a borrower defaults on a loan, the bank must make up for that lost money with interest collected from all borrowers, because the bank MUST destroy the money when it is paid back OR when it cannot be paid back (default), when the collateral is redeemed or lost.

Any private bank loan is only a temporary expansion of the money supply, but new loans are made at the rate (or more) that old ones are redeemed, so the overall aggregate effect is more-or-less permanent. Barring recessions/depressions/retractions/hyperinflation/economic collapse...

Banks have not acquired the sovereign power of creating money, they just have a highly-regulated portion of the money creation system. The sovereign central bank also creates money and makes very strict and specific rules about how and how much private banks can create. Seigniorage is still held by the central bank as it creates currency (coins & bills) through the mint at a cost which is a tiny fraction of the currency's money value. The issuance of debt money in exchange for collateral is not seigniorage. 

When private banks buy government bonds, they must do so using money provided by investors, they can't just lend money into existence to buy government bonds. And generally banks don't want to hold those bonds very long, they sell off the majority to insurance companies, pensions, mutual funds, other institutions, individual investors, etc. They only keep what they are forced to keep by regulation. Government bonds pay the lowest interest rate, banks don't want to hold them, in fact there are times (like now) when t-bill interest is at or below inflation rate and holding government bonds means banks are actually losing money, either directly or as an opportunity cost in less money available to buy other higher-return assets. When the Bank of Canada issues new bonds, they basically tell each bank how much they must buy and the banks either go along or lose their position at the window. The money banks make from government debt isn't from the interest that government pays, but from the markup between buying wholesale and selling retail.

Canada's big chartered banks are very profitable but as far as I can tell, most of that profit derives from service fees rather than direct interest on money they create by lending it into existence. If they somehow lost that money creation power, those service fees would still exist but would probably be much higher.

To a certain extent the total money supply is limited by the value of all potential collateral, but I don't think this generates economic rent. Firstly, because the total aggregate value of collateral vastly exceeds total debt and money supply, and secondly, because the overall limit of the value of collateral creates rent on the collateral itself, not on the money that is lent against it. And perhaps thirdly, because while collateral is (theoretically) limited in volume, the valuation of collateral is far more conceptual than physical, and thus can increase or decrease at a far more rapid rate than the actual creation/destruction of real assets.

To boil that last bit down to a very simple example, a piece of land may generate rent. If you borrow against that land, essentially creating money "out of thin air" (but actually by exchanging part of your claim to that land for liquidity), any rent that new money attracts is really only the rent the land generates, re-allocated to the money or the loan.

Erich.

p.s. The creation of money through debt is made out by some to seem like a cruel trick of the banks - making money "out of thin air" and then charging you a fee to use that money, but I see it as actually a pretty amazing trick by the borrower. Whether borrowing money against your land, your building, your vehicle, your machinery/tools, or your future income, you are basically getting cash you can spend now while still getting to live on the land, in your building, drive your car, use your tools to generate income, etc.  (In the case of future income, you are like a time traveller, getting to spend today money you won't earn until next year). Without this kind of debt, you would be forced to sell your land/house/car/tools to get the money you need for food or whatever. Instead, the bank gives you the money you need (subject to repayment, of course) and you get to keep your house/car/tools. As much as they are "making money out of thin air", you are "getting something for nothing" - having your cake and eating it, too. I'd much rather mortgage my house to start a business than have to sell my house to start a business, because then where would I live?

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