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Why land must be commonly owned – and how we can get there

There are three major changes required to get to a sustainable and socially just economy: 1) the replacement of private banking with a commons bank; 2) the replacement of the share owned corporations with profit sharing cooperatives; 3) the replacement of private land ownership with common ownership.

The third item presents the greatest difficulty in acceptance for many people. In their perception, it somehow impinges on what they perceive as ‘personal freedom’. Consider how land becomes privately owned today as compared to previous ages when it was ‘owned’ through a political-military structure in which a king bestowed land onto his favourite military servants – these servants then becoming land owning aristocrats. We don’t have a military structure in society any more (or at least we shouldn’t), so one does not get to own land through military prowess. What we do today to get ownership of land in perpetuity for ourselves and our descendants is that we exchange money for it. Is there something ‘real’ in this process? Well, money is just an invention by the collective to mediate the trade in goods and services. So in trading money for land, we are trading goods and services for land. This land ownership then gives one a permanent source of goods and services in the future, i.e. a permanent source of land rental income becomes a permanent source of free goods and services. So if you are working for a living, you are trading your goods and services (labour is a service) for other people’s goods and services. Now someone who has inherited a property from his grandparents or great grandparents, and rents out the property is making a claim on goods and services people like you are producing. To put it another way, that person’s predecessor created goods and services which, because they exchanged it for land, enables that person today to just sit back and make a claim on the goods and services you are now producing. If the absurdity of that isn’t apparent to a person, then I would imagine that such a person has vested interests in being a rent collecting landowner.

There are other ways to demonstrate that land should not be privately owned in the first place. Imagine the following as hypothetical situation which cannot happen in the real world but as a hypothesis, serves to demonstrate why land should never have been tradeable for money in the first place. Imagine the following:

A large passenger boat finds itself grounded on an unknown island and everyone survives. The passengers realise that it may be a very long time before they are ever found. The island is big enough and is abundant enough in resources to recreate something that resembles a modern economy. Along with the cargo of the boat is a printer and loads of paper. The residents of the island figure they can create a currency within themselves using the printer. The printer is closely guarded by the community and is used to issue a paper currency. Some clever residents also help to create a communal book keeping system so that the essence of a modern banking system is developed on the island. (The new currency might be assigned an initial value by say, equating one unit of currency to one coconut.) Through a process of communal deliberations, it is understood that no one owns the land. Because some of the residents are forward thinking people, they argue successfully that not even the residents collectively can claim to own the land. They are custodians or residents. It is also worked out that some of the land has to be parcelled out so that it can be worked on by individuals without the collective taking a claim on the fruits of the individual’s labour. (Some of the residents know from history that collectivisation leads to a lack of incentive to produce.) It is also understood that no two parcels of land are held in equal value; and that future developments might make some parcels become more valued than others. So the residents implement a system of land tax in which residents can claim right of use for their parcel of land, and paying a tribute, a land tax, to the community for the right to use that land. The land rental rates are periodically reviewed. Payment of the land tax is of course done with the currency that the community has just created.

All of the above is logical and ethically correct. It describes a modern economy which would develop intelligently with a carte blanche at the beginning. Now imagine that a person has accrued a lot of money in this economy. He makes a proposal to the residents collectively. He says that he will hand over a certain amount of money in order to gain freehold ownership of the land in perpetuity. The residents laugh at his proposal. Why would they do that? Because the rich person is wanting to trade something for land that the collective has no shortage of – money. If he is offering say a million units of currency, the community says “Well, we can duck into the treasury office and come out with a million units of currency in two minutes. Or, easier still, we can just put an entry into the books.”

So if we begin with the understanding that no one owns land in the primal sense, that land is not privately owned if we started from scratch, then it would be an absurd proposition to say a person can second a piece a land for freehold ownership by trading money for it. Money is something invented or created by society as a collective agreement, and society as a whole can come up with any amount of money it wants to. The collective would never trade its money for a permanent, inviolable right to use of land by an individual.

 

How land can be commonly owned without undermining the individual’s security and incentive to produce

An underlying sentiment that might lead many to have an aversion to common ownership of land may be expressed as follows: the commons might take the land back at any moment and the hard work I put into it, as well as the personal relationship I develop with it, will all be lost. Also, if I make any improvements on the land, such as erecting a house, that too will be taken from me.

These concerns are real enough and any proposal for common ownership of land has to take these concerns into consideration. This is my (Gavin Tang) proposal to reconcile these concerns with the need for land to be commonly owned:

Land should be leased to individuals and private parties on a 33 year or lifetime lease, with the lifetime proviso kicking in if the tenant lives more than 33 years after the signing of the lease. 33 years enables the tenant to feel secure that their children will be adults by the time the lease expires. At this point, they will be more than capable of finding their own property to lease – if for any reason the lease is not renewed to them. The lifetime provision means the tenant can live their life out on the property if they live to old age. Improvements such as buildings are paid for and owned by the tenant. If the property is passed on to another party to take over the lease, the improvements are sold privately to the new tenant. (The new tenant might want to sign a new 33 year lease, which may or may not be accepted.) In certain cases, the improvements may be sold separately to someone who takes it away for re-erection elsewhere or dismantling for second hand materials. If and when the commons takes the property back and does not wish to renew the lease, it pays the then owner some kind of ‘market price’ for the existing improvements. Certain qualified third parties like builders are called in to give an estimate for a valuation of the improvements.

Rental rates may be determined by an auction bidding system at the beginning of a lease, with the existing improvements, e.g. houses, being owned and bought separately by the lessor (loans for such purchases being available from the commons bank). Rates may then be periodically reassessed, say every eleven years. There are mechanisms for coming to a valuation of the rental rates for properties. I imagine there may be rental agents and others in future who can do independent assessments. (The rates I pay my local council is based on a valuation of my property.)

There are no reasons why a person could not hold a lease on a property or several properties, pay for or add improvements, and then sub-lease the property out. They are passing on the land rental to their own tenant; the income they make will be from renting improvements that they have had made and that they service through maintenance. Some people may choose to make a living like this and it would be a valid way of making an income because the provisioning of a service and good is involved. There are also people who do not want to be tied down by a land rental contract with the commons and it suits them to sub-rent from a private party. It may or may not be the case that the commons will have a policy of prioritising people who will actually live on the property they wish to rent from the commons.

 

How society can use its banking system to reclaim land for common ownership

The above arrangements offers all the security of tenure that a person could want but also resolves the shocking consequences of private land ownership in our society. But how does one achieve that in a reasonable time frame, and without some kind of egregious expropriation of land?

Some people might imagine that for the commons to reclaim ownership of land without resorting to draconian measures of expropriation of some kind, then the commons would have to generate budget surpluses (from tax collection) and then use this money to buy land back from individuals. The process of reclaiming common ownership of land is much faster and simpler than that.

Recall that private bank loans are the driver of land prices; that the money created by banks for loans engender the ever increasing escalation of land prices. This is argued and shown in the article The origins of unaffordable housing in the practice of private ownership of land and private banking . If private bank created money is the cause behind the rise of private land ownership, then it should follow that if we develop a commons bank, the commons bank can also create its own land money to reclaim land for the commons.

If the existence of private banks are terminated by the commons bank by the simple measure of the latter not guaranteeing their deposits (as explained in The origins of unaffordable housing in the practice of private ownership of land and private banking ) then all the existing mortgages (which make up about 60% of the money supply), will cause a shortage of money supply as they get repaid. Recall that repaying a loan contracts the money supply just as a new loan expands it. A contraction of the money supply will grind the economy to a halt because there is not enough money in circulation to pay remaining loans. The commons bank has to step in with its own money creation. It can do this and resolve the issue of reclaiming land ownership at the same time. This is how it can be done:

The commons makes loans to a sister organistion – a commons land trust – for the purpose of purchasing land offered for sale on the market. No property loans are made to any other organisation apart from this land trust. The purchased land is rented out as described above (including the sale of improvements to private ownership). The land rental income is used to pay back the loan (even though it doesn’t even have to be paid back; paying it back would be more an issue to do with controlling the money supply). Every time a private party wishes to sell their land, the commons will have a much deeper pocket to buy the land than any other party. And there will be no private bank to make loans for people to purchase property. Gradually all land will come back to common ownership. As people gain access to commons owned land through rental, the price of land rental in the private market will drop, and the market price of land will do so as well.

 

 

How land can come back to the commons through a project like the Fractal Economy Cooperative

If – and only if –  a community run organisation had a bank licence enabling it to make loans on the basis of credit creation, then it could do the following: loan money to a sister organisation, a community land trust, which then rents out the land as described above on behalf of the commons. The land rental income pays off the loan. If the money is created out of nothing as credit creation, the whole thing is self-funding and-self generating. Of course it doesn’t happen in reality because capitalist banking regulations stipulate that the lender and/or the borrower must have some collateral for the loan to happen. However the idea of a self-generating process for common ownership of land must be enticing – the community does not have to make that money in profit before securing the land. The question is how to comply with capitalist banking regulations and come up with the collateral/assets.

 

This question might be made trickier by contemplating this fact: any community minded banking institution will be acting in such a way as to serve its membership. To do this, it will be making loans as accessible to its borrowers as possible, and not act to extract as much income from them as possible. Interest charges will be made low and bank charges will be minimised, for example. Such actions will sharply curtail the community bank’s income and its profits, which mean that its assets ownership will not expand; and this has a negative impact on its ability to make future loans. So this is a dilemma for community minded organisations trying to use a community bank licence to further community land ownership – the more the bank serves its membership, the more its ability to make loans are impeded. The only way out of this dilemma will be to find another way to generate communal funds outside of interest on its loans. There is such a way to generate such communal funds – potentially a lot more than interest charges on loans.

 

Consider the following hypothetical situation. The community bank makes a loan to one of its members; and the bank stipulates that the borrower has to use that money to purchase goods and services from another member of the bank. The bank (or community organisation with a banking licence) has a list of members who provide goods and services for sale to the general public. Such members, as a condition of membership, agree to pay a ‘commission’ or ‘community contribution’ of say 3-5% of every such sale (member-to-member sale) to the community bank. All members are encouraged to buy preferentially from fellow members – and they will have many incentives to do so as will be explained later. Now if the bank makes a $1,000 loan to a member and they then purchase goods and services from a fellow member, this generates 3-5% of the purchase value in communal revenue. If the person who receives that money also uses that money to make a purchase from a fellow member, that generates another 3-5%. So in two sales, the community has generated 6-10% of the loan in revenue. On the whole this will happen in a matter of weeks. To generate the same amount in interest payment, it would take a whole year (at 6-10% interest). So if it was possible to encourage such member-to-member sales within the bank’s membership and then charge a ‘community contribution’, one could generate a lot more communal revenue than is possible from interest charges on loans.

 

The FEC is in its first stage of development. It does not have a bank licence yet. (The big banks contrived some years ago to make it impossible to start a credit union without a lot of initial capital.) However what the FEC is doing is building up an economic community built up of a network of buyers and sellers. And it has (or shortly will have) in place the technology to record member-to-member sales and then charge the ‘community contribution’. This structure can and will work – as explained in its ‘Hands-on Guide’. When this structure is combined with a banking licence, we have the revenue to create the assets/collateral to make possible the land purchase loans described above.[1]

 

 

 

Endnotes

[1] The revenue from the community contribution (which in fact is a transaction tax [link] by another name) is not used to purchase collateral in order to make loans. The revenue is disbursed within the FEC as gift money for the various not-for-profits within the FEC. What the revenue can do is show to its membership that all its loans are guaranteed by its community contribution revenue – guaranteed not in the legal sense (i.e. according to banking regulations) but guaranteed in the sense of having an income to cover failed loans. The FEC will never get in trouble for When members see that such communal income will really cover the community bank’s loans, the braver ones – or the ones more desirous of doing something to tackle capitalism – will offer their assets (namely land title) as collateral against the loans by the FEC. In short the FEC is to develop trust and confidence amongst its membership to the degree that we will, as individuals, offer our assets as collateral to guarantee the FEC bank loans

 

 

Transaction Tax

In the national economy, a transaction tax would be a flat rate tax on every monetary transaction with only a few minor exceptions such as transfers within a family unit. No costs or expense s by businesses will be tax deductible. Purchases of things like shares and currencies will also incur this tax (which pretty much wipes out the speculative transfers of capitalism). In the FEC economy we apply this tax to transfers between members so that we as a collective can do very good and powerful things with it. For marketing reasons, we have renamed this tax to ‘community contribution’.

Commons

We at the FEC do not think that the government is the appropriate collective institution to manage things like banking, taxation and land rental. These can all be taken out of the hands of government. Government should be restricted to policy making in the political realm. What we call the commons is an economic collective. This economic collective does not have the argy bargy of the political life. Outside of the capitalist context, it is the principle of cooperation and mutual aid that pervades the economic life, and it will have a very different structure to government. Because the term ‘public’ is often associated with government, we prefer the term ‘commons’ in reference to this economic collective.

Community Contribution

‘Community contribution’ is in fact the same as a transaction tax as described elsewhere [see Article 2 in ‘Further reading’]. The reason we have renamed the tax is for marketing reasons as people recoil from the notion of paying an extra tax. Tax payments is in fact how we as individuals contribute to the community in order to fund things like public transport, welfare and a functional judicial system. So people should be proud in saying that they pay their taxes. The reason that we have an aversion to the word tax is brought about by corporations who have the ability to make their expenses cost deductible. They load up all costs of dubious things into their income-expenditure calculations that they can get away with not paying a lot of the taxes that are their due. The whole scam trickles down to the rest of the economy and tax avoidance/evasion becomes an acceptable sport. In a true transaction tax, no expenses are tax deductible.

What is a fractal?

A fractal is by one definition ‘An object whose parts, at infinitely many levels of magnification, appear geometrically similar to the whole’. Take the fern leaf as shown in this image:

The first image above is a graphic picture of a whole fern leaf. If we take one of the ‘branches’ of the leaf – as depicted in the boxed section – and examine its structure, we find that the ‘branch replicates in full the pattern of the original fern leaf. The boxed section of the first image, rotated and appropriately magnified as in image 2, show an identical pattern to the whole leaf. If we take yet another ‘sub-branch’ out of the fern in image 2 as depicted in the boxed section of Image 2, we find the same leaf pattern replicated again. And so on.

The Fractal Economy Cooperative takes its name from this feature of fractals – that the part replicates the whole. We believe that what needs to be done in the global economy is the same as what needs to be done in the national economies; and that it is what we intend to do in the fractal economy. This means that we policies in a number of places that should also be practised in the national economy in order to make it a socially just and environmentally sustainable economy: direct democracy in the realm of policy making, direct individual participation in the allocation of public/commons spending; all the practices that make up for what we call commons banking, a new taxation system (which we call ‘community contribution’ for marketing reasons); support for cooperatives over share ownership of companies; a return to common ownership of land effected through the banking system.