The Solution to the Eurozone Sovereign Debt Crisis

The Eurozone is in crisis. Wednesday's City AM's headline, 'ENDGAME', sums up the mood. But as the Chinese linguists and the German poets know, moments of crisis, as well as being moments of great danger are also moments of great opportunity. The danger in this case, is that the increasing price that Southern European countries have to borrow both represent, and themselves precipitate, a risk of sovereign default. Increasing yields become a self-fulfilling prophecy, a one-way bet for whichever nation-state is next in the firing line for the international bond markets. Finally, step by step the entire Eurozone unravels at potentially great cost to Euro-denominated bondholders and European taxpayers.

But there is another way; and that way is remarkably simple. Italian savers and depositors should fund the italian government; spanish savers and depositors should fund the spanish government, french savers and depositors should fund the French government, and german savers and depositors should fund the german government. Italians are prolific savers; just as their government is a prolific borrower. Italian bank deposits amount to €1.4trillion, 70% of that country's huge €1.9trillion public sector debt. If there was a way that these savers could fund the state; and another way to fund the banks could be found – then this would take off most of the pressure off the Italian government. Such a way can be found. Furthermore, this way not only helps out the highly indebted public sectors of the south; it would make the banking systems in these countries more stable too.

Governments trying to fix their bond markets are like pantomime artists trying to balance plates on sticks. The plates have to keep spinning, and in a way that is approximately stable. It's exceedingly difficult to keep the plates spinning: put taxes or cut spending too much and the economy would nosedive; not enough austerity and, some argue that the bond markets would take their revenge (although we don't seem to have seen an example when severe austerity has actually worked once the bond markets have decided that a country is in the firing line – but that's another story). All the politicians, European institutions, central bankers etc are frantically trying to keep the plates spinning, and therefore to keep the plates horizontally balanced. But there is another way to keep the plates horizontal. That way is to take the plates off the sticks and put them on the floor.

The financial system is well advanced at producing well structured financial products (ok, there have been some really badly constructed financial products, but those really are the exception to city know-how). Principles of such system are that the maturity and risk profile of assets and liabilities should be well matched. However, the system as a whole, and particularly the system of money, banking and government debt, would get a D- for it's financial construction. It is shockingly badly constructed; risk and maturity and liquidity profiles are shockingly badly matched. That needs to be changed.

I'll get to the point. We need to implement a version of full reserve or narrow banking; where every pound in an account is backed up by a real pound of state created money, including an accounting entry by state institutions. The deposits of the Italian banks should be transferred to the Italian central banks. In exchange the banks would issue new bonds with equivalent value to the Italian state. Those bonds could then be sold by the Italian government on the open market, and the revenues used to pay off most of the italian state's outstanding debt. The same solution can be implemented across the Eurozone. This would make deposits safer and would finance the state. 

Updated: Beware! Austerity without end will not work and will endanger Europe!

Substantially Updated 12th November 2011

Bitte bedenken Sie! Einschränkung ohne Ende wird nicht funktionieren und kann das gesamte europäische Projekt ernsthaft schädigen! Wir müssen bessere Möglichkeiten finden, um das Wachstum in den südeuropäischen Ländern zu unterstützen. Ein taktischer Rückzug ist notwendig. Zum Beispiel könnten weitere Währungen und weniger Rentenmärkte erforderlich sein. Vollständige reserve banking eingeführt werden sollte. So europäischen Staatsschulden sollten durch private Spar-und Anlageform finanziert werden, während Geschäftsbanken sollten neue Anleihen auszugeben.

Méfiez-vous! Austérité sans fin ne fonctionnera pas et risque d'endommager sérieusement l'ensemble du projet européen! Nous devons trouver de meilleures façons de soutenir la croissance dans les pays d'Europe du Sud. Un retrait tactique est nécessaire. Par exemple, plus, en parallèle, les devises et les marchés obligataires moins peut être nécessaire. La pleine réserve bancaire devrait être introduit. Ainsi européenne des dettes souveraines devraient être financées par l'épargne privée et des dépôts, tandis que les banques commerciales doivent émettre de nouvelles obligations.

* * *

The Eurozone crisis has two elements: a crisis of competitiveness and a financial crisis. We can solve the financial crisis (as perhaps is now being done) but the underlying competitiveness crisis remains. It is the competitiveness crisis that shows the underlying structural problems of the Eurozone, and it is this problem that must be solved at all costs for the entire future of the European project (a project, of course, that Britain has never truly bought into... but that is another story).

How can the Eurozone crisis be solved? This article will describe possible solutions. The most important point to recognise is that the leading Eurozone countries (Germany, primarily, but the other members of the Eurozone too) must be able to recognise that mistakes have been made, as a first step to solving it. Austerity without end simply will not work, and may destroy much of the credibility of the entire European construction.

* * *

In the summer I visited the Pyrenees Mountains in southern France. One day, my sister and I went for a walk. All was well until we lost the main path. So we walked on, up the valley that we expected to take, and then finally got to what we thought was the right path. The guidebook informed us that we would find a lake and then a barren lunar-like landscape. We found these things, but the walk was taking us much longer than we expected. The guidebook then suggested that we should climb until we reached a ridge. We saw a ridge in front of us, but by this time it was nearly 6pm and we were less than half way through our walk. Suddenly it dawned on us that the ridge in front of us was close to the summit of the Pyrenees, and the direction we were taking was west when the route was supposed to take us North. We were in the wrong valley.

I mention this episode because it shows the necessity of recognising a wrong turn. Sometimes we need to admit errors, in order to find a better way forward and to avoid disaster. This, in a manner of speaking, is what needs to happen with the Eurozone. Recognising an error or a structural problem created by human decisions is not the same as recognising that everything we did was wrong. Rather it is a humble admission of human frailty and a call to change path, or retreat for a while, to keep the whole show on the road. I believe we can apply the same lessons to the Eurozone at present time.

* * *

There are a number of interconnected crises in the Eurozone at present. The first can be broadly called a 'financial crisis' and includes the southern European governments of Greece, Italy, Portugal and Spain, the Eurozone banks, and some central European institutions, primarily the European Central Bank and the Eurozone Stability Fund. The second, more long running crisis is the crisis of competitiveness and growth problem in the same southern European countries.

As Martin Wolf of the FT has recently pointed out [1], the solution to the crisis must involve both financing and adjustment. Financing, because otherwise southern Europe would go bust; adjustment because without it, Southern Europe would be stuck forever in a low growth, high unemployment, state. Financing has been agreed at the Eurozone summit, subject to some implementation details. What is still to be worked out how adjustments can be made.

What is adjustment? Adjustment is the process of improvement of competitiveness in countries that have on going low growth and high unemployment. Competitiveness can be measured crudely by the price of a unit of productivity; by labour costs multiplied by real productivity per unit of labour. Productivity can be improved typically in three or more ways:

  1. The exchange rate of the uncompetitive nation can devalue;
  2. Inflation can rise in competitor countries;
  3. The uncompetitive country can cut its labour costs voluntarily or through a slow, usually painful, process of deflation.
Typically, countries can accomplish a devaluation of the exchange rate rather easily; inflation in competitor countries is not usually under the control of the uncompetitive country; finally cutting the labour costs is the final option. This is usually the hardest, and is most difficult in a recession. It is an option that needs to be avoided at all costs, because the pain may prove too much for the Euro, or even for the European project in general. But it is the route taken in the Eurozone now, as the other options have been ruled out. We would be best advised to seek an alternative route.

* * *

One attractive solution to the debt crisis involves what is known as full reserve banking (or the related concept of ‘narrow banking’). Most of the money supply in the economy is bank deposits. And bank deposits are merely the bank’s 'promise to pay' currency on demand. Bank deposits differ from other promises to pay like bonds in that bank deposits can be used to settle accounts; hence they are money. So bank money is both a liability for the bank and is money. The consequences are that is possible to swap the liabilities of the state for the liabilities of a bank. The banks can issue bonds and the government can issue money. In that way, the Italian national debt would be primarily composed of private sector bank accounts at the bank of Italy (although the bank accounts could still be administered through the private banks). And the residual ‘loan fund’ could be fully private and could issue new debt and equity without major government regulation.

What are the complicating features in the European case? There are two: a) fiscal discipline in peripheral Eurozone states and b) competitiveness in peripheral Eurozone states. Can these problems be solved? Yes: but only by solving other problems too. Fiscal discipline can be enforced only by taxes that are actually collected, such as Europe-wide carbon taxes or fuel or property taxes in the specific states in question.

The problem of uncompetitiveness is harder. This can be truly solved only by Eurozone break-up or by equivalent nominal changes. But an uncontrolled breakup hits the credibility of the whole European project.

For the Euro itself, there are three options:

  1. Keep the Euro; enforce central Eurozone bonds and/or central taxes such as upstream fuel taxes and use the ECB/Quantitative Easing/Full Reserve Banking to sort out the debt crisis;
  2. Keep a pan-Euro but weaken the currency by creating a parallel currency in the northern European countries (including Germany and others); existing Euro obligations would be retained, but the North would transist to a new currency.
  3. Let Greece default and then let them leave the Euro, and see the others fall too.
All options have their advantages and disadvantages. What must be made absolutely clear is commitment either way. Either Greece has the full commitment of Germany or it does not. If it does not, Germany needs to create an alternative structure. Once we have a group with full commitment defined; full reserve banking, transfer of bank liabilities to national savings banks, or government debt purchases must be used to squash any further debt crisis, and appropriate taxes must be raised to ensure proper tax collection.

* * *
So which would be the solutions that Europe actually takes? I propose three:

First, and most important is the introduction of full-reserve banking in the Eurozone. Under this system, European depositors would finance European governments rather than financing the banks. Italian commercial bank deposits would be, in effect, transferred to the Bank of Italy, and so on.  With their liabilities to depositors taken away, Banks could issue new bonds and the money generated transferred to the central bank, to pay for the reduction in liabilities. This money could be used to purchase the outstanding government debt. Italian bank deposits amount to around €1.4trillion, a substantial part of the €1.9trillion Italian government debt.

Second is to do with currency, and is a partial retreat from the Euro idea. The plan would involve setting up an additional, initially parallel currency for the Northern European countries in addition to the Euro (which would continue to be pan-European). Over time, taxation and money issuance in a Northern-European block would be switched to a hard-Northern-Euro basis. All existing Euro-denominated nominal obligations would be paid in full but the basis of those obligations must be allowed to devalue in real terms.

Third, I wanted to mention some solutions to current account deficit financing. With monetary policy ineffective, fiscal policy must be used. But the northern European countries want to cut down on southern profligacy.  The creation of more European government paper (money or government bonds) by the Eurozone and the spending of that paper into the southern economy would be an effective way to stimulate the southern economy. But who should create what paper and for what purpose? It seems to me that the appropriate thing would be for the Eurozone to create such paper and to spend it in the south; ideally on real assets such as power stations, but could also be on financial assets such as land. In that way the deficits of the south would be financed. Deficit spending is needed by the Eurozone to stimulate the South, and that deficits spending should be used to construct real assets and to stimulate the southern European economy.

* * *

Whatever happens in the Eurozone, it is essential that a single fact be noticed. Austerity without end will not work. It will not improve southern European competitiveness enough to compete with Germany, and the unhappiness caused will derail the whole European project. So a tactical retreat is needed. Such tactical retreats need to involve financing and adjustment. But what is certain is that we need more demand in the South of Europe in the short term, and not austerity without end. Creative ideas to promote more growth are needed; and a partial and managed retreat from the monopoly of currencies and the proliferation of government debt is required. We'd be better having two or more European currencies and a single Eurozone debt, backed by common carbon or land taxes. Most importantly, a version of full reserve or narrow banking should be put in place. This would allow European savers to finance a large part of European nations’ sovereign debts and would also promote greater long-term stability in the European banking system.

[1] ‘First Aid is not a Cure’, Financial Times, 11th October 2011; available at: 

Green Growth

My proposals would focus on electricity market reform (focusing on very large amounts of investment in zero-carbon power) and a very large consumer-basis carbon incentive, (a tax refunded according to historical consumption for consumers; but not falling on producers until equivalent taxes could be placed on carbon-intensive inputs). This could be allied to financial reform (bank money-government money/governmetn debt/bank debt swap; and/or negative interest rates; and/or standardised green bonds).

A touch more complicated than saying just 'a carbon tax' but then the principles are basically the same, it would, I claim, stimulate the economy, not put people's bills up and avoid costly subsidies.

Gesellian Monetary Policy

Gesellian Monetary policy is, basically, the idea that you tax money. Gesell himself suggested you stamp money. Not much fun for savers, you might say. But money is an illusory asset: it is not backed by any real asset. Keynes argued that because the supply of money could not increase when demand increased, the existence of money (especially inflexible money ie gold) caused recessions.
Keynes argued there were two ways out of this conundrum -- a flexible money supply (central banking), or gesell's idea of taxing money.

Keynes argued that there are two problems with Gesellian monetary policy. The first set are to do with practicalities - stamping money is costly and could be faked. The second is that another commodity (land, precious metals, foreign currency) would step in as a store of value, replicating the role of money and leaving us no better off.

But there are solutions to the practical problems. One which I read about was to perform a lottery on the serial codes of banknotes. Another would be to impose chips on coins and notes. All these I find unconvincing. There's a better way. Separate bank money and currency so there is a separate cash pound (the british pound) and a bank deposit pound (call this the british 'sterling'). Instigate a given but slowly changing exchange rate between the two. Then tax the deposit pound and slowly devalue the cash pound relative the deposit sterling.

What do you do with the taxed deposit sterling? If you destroy it, isn't this the same as doing nothing in pounds terms? (It depends what transactions are written in: pounds or sterling). If you reintroduce it, isn't this the same as printing money?

(In regard to the second set of problems, you could tax them too; at some points asset inflation might not be a bad thing.)

An interesting thought experiment.

Stopping the looting

The London riots show a 'pillage' economy coming to our streets.
The police obviously need to get a step ahead of the looters, or else this will overwhelm the ability of the police to keep things under control. The danger that looting would spread to everywhere if not stamped out.
The first thing to do would be to close down the Blackberry messaging service that seems to be used by the looters to coordinate their attacks.
A second measure would be to declare an after-dark curfew on various parts of the capital - ie shopping centres and shopping streets.
The third thing is to draft in sufficient police resources to impose this shutdown. There needs to be a small police presence guarding every shopping place and mobile units ready to reinforce these units anywhere where violence breaks out.

The Solution to the Eurozone Debt Crisis

"Money is Debt" is the key message of recent money reform is video. Or at least 97% of it is. Let me explain. Most of the money supply in the economy is bank deposits. And bank deposits are merely a 'promise to pay' on demand, whatever numbers are in your current account. Bank deposits differ from other promises to pay like bonds in that bank deposits can be used to settle accounts; hence they are money. So bank money is both a liability for the bank and is money.

What does this mean? It means that we can swap the liabilities of the state for the liabilities of a bank. The banks can issue bonds and the government should issue money. Easy. Alternatively, the central bank can buy ECB bonds, and raise reserve requirements. Straightforward.

What are the complicating features. There are two: a) fiscal discipline in peripheral Eurozone states and b) uncompetitiveness in peripheral Eurozone states. Can these problems be solved? Yes: but only by solving other problems too. Fiscal discipline can be enforced only by taxes that are actually collected; such as Europe-wide carbon taxes or fuel or property taxes in the specific states in question. Uncompetitiveness is harder. This can be truly solved only by Eurozone break-up or by equivalent nominal changes. But an uncontrolled breakup hits the credibility of the whole European project.

So in sum, there are two options:
a) Keep the Euro; enforce central Eurozone bonds and/or central taxes such as upstream fuel taxes and use the ECB/Quantitative Easing/Full Reserve Banking to sort out the debt crisis
b) Split the North from the South of Europe; create a Southern Euro (Portugal/Italy/Spain/Greece/Ireland) and a northern Euro (Germany). It may be best for Germany and co to leave to set up their own currency (let's call it the ECU) rather than the other way around.
c) Let Greece default and then let them leave the Euro, and see the others fall too.

All options have their advantages and disadvantages. What must be made absolutely clear is commitment either way. Either Greece has the full commitment of Germany or it does not. If it does not, Germany needs to create an alternative structure. Once we have a group with full commitment defined; full reserve banking, transfer of bank liabilities to national savings banks, or government debt purchases must be used to squash any further debt crisis, and appropriate taxes must be raised to ensure proper tax collection.

The general theory of economics: a desert island allegory

This short allegory attempts to understand a simple economy and how investment, inflation, growth are affected by banditry and taxation, the existence of money, and the financial sector. I attempt to show how the schools of economics (classical, Keynesian, Austrian, and Georgist) can be considered part of a general economic theory, that is surprisingly simple to explain and understand. This is relevant to anyone interested in how the economy works, and can be made to work better, giving our society greater real wealth and more freedom.

PDF version here

The Desert Island Economy
Consider a desert island with some farmland, a small wood, and two men: a farmer and a toolmaker. The farmer (Adam) spends all his available time farming. He tills the soil with the tools he has, and, as they wear out, he replaces them, by trading with the toolmaker. He produce a range of foodstuffs including growing apples in his orchard (to simplify we will refer only to apples as the primary unit of food). The toolmaker (Fred) harvests his wood sustainably to manufacture a steady supply of wooden tools, and then trades with the farmer to obtain food. Both have enough food to survive, but there is no surplus to invest.

Fukushima Meltdown -- The Worst Case Scenario

I have been speaking about the ongoing Fukushima nuclear power saga. It may be necessary to consider in detail the worst case scenario for the plant, which could transpire in the next few days.
  1. The operators fail to cool the reactors;
  2. The fuel and fuel cladding melt, creating a radioactive magma;
  3. The fuel magma melts through the bottom of the reactor vessel;
  4. The magma hits the concrete, and causes chemical explosions which lifts some of the magma into the air;
  5. The magma contaminates the immediate vicinity of the reactor; making the site unusable. Lower levels of radiation contaminate the nearby area (land or sea depending on the direction of the wind).
To prevent this, the reactors need to be cooled which means that water needs to be pumped into the reactors. It is essential to get power to the remaining pumping equipment.

This means:
a) A sufficient power source (e.g. a grid connection or sufficient diesel generators - there should be others on the site)
b) Sufficient diesel to power those pumping devices (this could be shipped in by helicopters).
c) Sufficient pumping power is needed (fire engines may not be sufficient - the other reactors on site that are closed down could surely be used in some way).

Furthermore, actions need to be taken to prevent further explosions and build up of pressure in reactor core.

If this eventuality is not prevented, it would be a level 6 accident on the 1-7 nuclear accident scale. It would lead to a one-off release of radiation; but not an ongoing release such as happened at Chernobyl (level 7). The immediate site would be contaminated. Further contamination would depend on the wind direction. It would not however lead to major loss of life or health risk beyond those in the near vicinity.

Difficult decisions need to be made for personnel, such that they are rotated and monitors such that life-threatening levels of radiation are not received; and that individuals past a childbearing age are used, because of the risk of infertility.

The worst case scenario is probably 50% likely at the present time. To stop it (if that is possible at present), heavy pumping equipment needs to be used to pump water into the core (its not clear whether the fire engines used are sufficient). The main consequence of the worst case scenario would be possible injury to the people engaged in trying to prevent it. To prevent this, their radiation needs to be monitored.
A clear chain of command needs to exist, and decisions need to be taken promptly, with knowledgeable people in charge, under advice from the designers at GE. It's not clear whether a more serious accident than has happened already is avoidable.

There will be lessons to be learned from this accident. Despite this worst-case scenario (lets not forget this was one of the 5 biggest earthquakes of the last 100 years, and the reactor was built in the early 1970s, without the passive safety systems in modern designs) the main people at risk from death or injury are those who are bravely battling the nuclear problem. In terms of objective measures such as lives lost or loss of life expectancy, nuclear energy remains one of the safest energy sources available.

Arguments for A Fishing Husbundry Corporation

This note makes four points in regard to management of common pool resources, illustrated by the case of fisheries.2 First, I argue that the critical issue in regard to environmental problems is that prudential environmental constraints not being imposed at all – in many cases no constraint beyond sheer physical availability is respected.3 Second, I argue that monopolies are sometimes preferable over 'free competition' in the ownership and management of integral natural systems such as fisheries.4 Third, I argue that shared-ownership limited liability companies, regulated by appropriate authorities, can be useful legal entities for solving such problems. Fourth, I suggest that the ownership of shares in such a company (with monopoly rights to control access to the fishery) could be given to fishermen. This would change the fishermen's role from 'harvestry to husbandry', ensure political feasibility of the plan, and, it is argued, protect the fishery from long term degradation and destruction.

Environmental constraints (as opposed to resource constraints) we define here as those that are prudential rather than physically binding. In the short term, it is possible to fish more that a fishery will sustainably yield, but that will eventually cause the collapse of the fishery (fundamentally because fish are being harvested faster than their rate of reproduction replenishes the stock). Respecting environmental constraints requires two things: a) the imposition of a constraint, defined by some human assessment of natural limits; and b) the allocation of any rents from such a constraint5. Why does the environmental constraint not follow 'naturally' from the laissez-faire operation of the market and from private property rights? The problem (from the perspective of laissez faire) is that property rights have not been defined in the case of large environmental assets such as fisheries.

Imagine for a moment that an individual has no property rights over his home, and furthermore the home is open access – anyone can enter. Suppose furthermore that there are no other social structures – wary neighbours, traditional morals – to prevent others from entering, and that the house is well known to everyone in the world. In this case, despite the good nature of most people, it seems likely that thieves and looters would enter and steal the home's contents. Even the continued existence of the house is in doubt, since the building materials used to make it could also be looted. Now compare the house with the open sea fishery. The sea is entered at will by fishermen, often with huge industrial-scale nets. No access charge is made. The result would be the same as that of the open-access house. The sea is looted. Just like in the case of the house, there is a simple solution – private property. Private property of the house entails a monopoly of use and access to it by the owner; private property in the case of the fishery means a single legal entity with a monopoly to determine access. The main difference is that a fishery is a much larger entity than a house (it's more of a hotel than a house!); but the principle remains the same.

If we agree that proper management of the fishery entails at the very least that access to it is adequately rationed (for example through a price), this raises the question: what is the correct legal structure to do so? The literature on these issues provides some suggestions. Garret Hardin mentions the two structures to prevent "The tragedy of the commons": private property (already mentioned) and the state ('mutual coercion, mutually agreed upon').6 Elinor Ostrom, by contrast, finds that many of the traditional approaches that have preserved environmental systems fit neatly neither into these two categories.7 We may say, perhaps that the solutions are traditional, which includes in the West, the state and private property and also other systems around the world. Mancur Olson notes that collective institutions, such as the state, often respond to narrow interests rather than broad ones, because narrow interests have a greater incentive to engage in lobbying and other political activities.8 Given this, environmental policy that is essentially conservative (i.e. policy that does cause a redistribution of financial interests) may be preferable: other approaches may be politically infeasible.

In this essay I deal primarily with two institutions: the state and the limited liability company. Which is best? A state might be expected to act in the public interest, but faces a few constraints: a) it must respond to political pressure, and that pressure may come from fishermen who observe only their own short term gains; b) it may not have sufficient focus or information processing capacity to work out the best fishing yield; c) the problems may cross international borders.

We therefore consider another option: the limited liability company. By contrast with the state, firms typically have a narrowly defined set of objectives (although more narrow in UK and USA than for example Germany). In fact firms are so focused as they have been defined as 'pathological'. The firm is defined as a legal structure defined typically by limited liability and characterised by profit maximisation. Typically firms are strategically focused on core aims or mission. We should note also that the term 'corporation', has also been used traditionally in the UK to denote not just firms owned by shareholders, but also focussed public entities. Public corporations have been used in the past to solve environmental problems, such as the construction of a public sewerage system in London.

It is the proposed that fisheries management could be managed by a corporation. A new institution would be set up to manage fishing rights in a certain area, for example the British zone of the North Sea. The corporation is granted the right to charge fishermen access fees and other charges, and to limit the types of ship entering the zone, how they are permitted to fish, and their total catch. The corporation is regulated according to certain conditions: it must maintain fish stocks to a minimum standard set by scientists. Beyond basic regulation, the corporation is free to do what it likes to manage fish stocks. Shares in the corporation could be given to fishermen in proportion to their existing fishing quotas, to compensate them for their increased cost. The rent charged to the fishermen to use the fish stock would return to them. The fishermen could sell their stocks in the fishing husbandry company should they wish. But in the first instance the fishing husbandry company would protect the fish stocks for the long term, and be owned by the fishermen themselves. This corporation would be expected to act in the best interests of the fishermen and the fish, and through regulation it would be guaranteed to ensure the basic sustainability of the fishery.
2In the writing of this note I have been conscious that political ideas often find a voice because they are consistent with a wider set of ideologies espoused by one movement or another. Mostly, I hope to raise some pique in this paper by attacking simplistic versions of existing ideologies rather than actively supporting one or another. In particular I wish to illustrate ideas opposed respectively to simplistic (and, I would say false) versions of Georgism (the idea that the only tax should be a land rent charge); free market laissez faire; and environmental socialism. The ideas are, I suggest, consistent with other, perhaps more principled, versions of each political philosophy. I feel, however, that I have not entirely resisted the temptation to pin my colours to one particular mast, since the very modes of thought in economic ideas are, I think, somewhat political. In any case, I beg the reader not to let her politics blind her to her own reasoning and common sense, and to the arguments set out here.
3Rather than the problem being that rent is collected by private rather than public institutions. In the extreme case where no prudential environmental constraint is being imposed at all, there is clearly no rent associated with an environmental constraint to be collected. However, there may still be a rent to do with fundamental physical availability, however, this rent must be distinguished from that connected with the rent from a prudential environmental constraint. There is still a limited number of fish at any one time in the sea, however the prudential environmental constraint for fishing each year is tighter than the total number in the sea. If we fish all the fish in the sea, there won't be any to breed for next year. However, we should also note that imposing an environmental constraint is likely to reduce the private rent of the fishermen first (collecting the rent for public purposes), and only after that has happened, to impose further rents corresponding to the tighter, prudential environmental constraint.
4Although the cases illustrated could alternatively be viewed as a special case of the importance of private property, where the asset in question is very large and used by many people.
5Imposing criminality rather than a tax is another option – as has been tried in the case of narcotics – but such a policy tends to make those who can evade the law extremely rich as they can collect the scarcity rent associated with restricted class of people able and willing to evade the law.
6Garrett Hardin, “The tragedy of the commons,” Science 162 (1968): 1243-1248.
7E. Ostrom, Governing the commons: The evolution of institutions for collective action (Cambridge Univ Pr, 1991).
8M. Olson, The logic of collective action: Public goods and the theory of groups (Harvard University Press, 1971).