Radical Tax Reform - Henry and beyond

above: Australian Treasury Secretary, Ken Henry

Lev Lafayette calls for a radical review of taxation in the wake of the Henry Review into the Australian taxation system.

BTW also - next week we publish a wide ranging essay on Ecological Socialism - be certain to check back here next Sunday!

Governments and Taxes

As long as there are humans, we will form societies. As a result of those societies there will be governments [1], and in all probability these governments will require a source of human energy. This may be achieved through some fairly blunt means, such as slavery, corvée, a portion of a crop to more abstract methods through the monetary system which generally come in the form of taxes on transactions, taxes on production, taxes on consumption). Almost invariably the people who are required to pay taxes dislike the experience and some aggressively so, claiming that tax is a form of theft or slavery [2]. Others will debate on the proportion that should raised as a function of the total income of a country, or they will argue the relationship of the tax on income (progressive, proportional, regressive), the source of the tax, the most efficient ways of collecting it, and, quite importantly, where the money is going to be spent.

Volumes could be spent on each of these topics, and indeed already have. As a result, the following is only a sketch. But the core premise is for a tax that isn't a tax, nor a form of theft or slavery by any definition, that is a source of public income whose collection is extremely efficient, that spurs productivity rather than acts as a deadweight [3], and a means of expenditure that provides both welfare without corruption. Everyone from the most ardent socialist, to the Austrian-school capitalist should support it. How could such a thing exist? Economics, as a social inquiry, must begin differently to physical sciences. In the social world normative values alter positive values, rather than the other way around. As such, we begin on a normative basis - political-economy.

The Gifts of Providence

Political economy combines the moral justifications of types of property ownership along with the effects of the same. Alas, in contemporary economics it has become a sadly neglected field. Both the neocalssical economists, who prefered not to deal with such troubling concerns like moral justifications, and vulgar Marxists, who lumped all property and property-owners into the same class, led to serious studies in political economy to fall out of favour in the twentieth century. But just because a subject doesn't receive the attention it deserves, this does not mean it has no effect. Rather it means that some older sources must be sought.

Classical economists, including the physiocrats, Adam Smith, David Ricardo, Karl Marx, Léon Walras and John Stuart Mill, all recognised the distinction between the factors of production (land, labour and capital), the respective sources of income derived from each of these factors (rent, wages and interest) and the respective economic classes (landlord, worker and capitalist). An individual can be a member of multiple classes simultaneously and proportional to the way their income is derived. These terms are specific and carefully defined. "Land" includes all natural resources in their unimproved state. "Labour" refers to physical and mental activity including entrepreneurship. "Capital" refer to all products that result from economic activity, both simple and complex, including both commodities and the tools of production. Money itself is not capital, but rather a representation of the value of capital.

Now the various political economists have a diversity of views on the justified income to the various classes. Marx, for example, evocatively argued that "Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks" [3]. Others were a little more generous towards the owners of capital, arguing that the capitalist's return was morally justified because they engaged in risk. But across the board, none of the political economists - following the footprints of John Locke - could find a justification for the income of rent derived by the landlord. "Land" was a gift of Providence, something that belonged to "nobody" but whose fruits were to be equally shared and holding it was in usufruct. Land ownership was considered a feudal privilege, not a capitalist property right, which can be noted in the title "Real Estate" (i.e., "King's Estate").

The classical economists were also quick to recognise the effects of land ownership. Adam Smith saw it reducing the wages of workers and indeed, laid the foundations for a theory of wage-slavery, also noting that any tax on land could not be passed onto renters in a competitive market [4]. David Ricardo was even more blunt, on how the interests of landlords was always opposite to that of both capitalist and worker [5]. John Stuart Mill was a pains to describe how the 'sacredness of property' did not apply to landed property, and railed against how "landlords grow rich in their sleep without working, risking or economising" [6]. Following Smith, Thomas Paine provided a practical solution: the creation of a common welfare fund, derived from ground-rents. [7]

Some Experiences, Some Theory

Economic theory and practice has not been entirely asleep since the nineteenth century however. Whilst there have been plenty of wars fought over those who sought monopoly profits through resource holdings [8], there have been a handful of isolated cases where natural resources have been used as a source of public income - and with remarkably successful results. Botswana is one such example; whereas nearby African countries have extremely high levels of impoverishment, violence, instability and poor education, Botswana has the highest GDP per capita in the region (despite having one of the lowest at the time of independence), a stable constitutional democracy, lower levels of crime etc. What does Botswana do differently? The public receives most of the monies from diamond mines and other land follows a more tribal, communal distribution - freehold is considered somewhat of a colonial relic [9].

This is not an isolated case. When the Chinese Nationalists retreated to the island of Formosa, they implemented the tax policies of Sun Yat-sen. Whatever one may think of the rest of their politics, the Nationalists did tax land according to its value. Whereas previously, the country was effectively owned by twenty families with widespread hunger, the new tax policy meant that landowners sold off their excess at prices peasants could afford, and for twenty years Taiwan consistently had GDP growth rates of over 10%. Denmark experimented with the policy for three years in the 1960s with remarkable success, followed by equally remarkable failure when they abandoned it [10]. In Hong Kong, the government through leasing land and land taxes, raises over 35% of its public revenue and as a result has very low income taxes.

On a smaller scale, cities like Harrisburg and Pittsburgh, assessed rates on land several times higher than improvements. It should come to no surprise that vacant land or land with dilapidated buildings became quite abnormal. Melbourne, Australia has had the interesting experience of having different councils adopt different rating systems, some based on site-value, some on land and buildings. Again, those which adopted site-rating systems through most of their history have higher standards of living, better buildings, and improved infrastructure [11].

By the second half of the twentieth century, nearly every economist in the world, whether liberal, conservative or radical, agreed that public finances should be largely derived from taxes on resources use rather than labour, productive investments or transactions. People like Milton Friedman, Herbert Simon, William Vickery, Robert Solow, Paul Samuelson, John Kenneth Galbraith, James Tobin, James Buchanan and Franco Modigliani, for example, all spoken strongly in favour of such a policy - and every single one (bar Galbraith) of the just referenced economists are winners of the Nobel Memorial Prize in economics. You may be forgiven for thinking they have some knowledge on the subject.

The opinion of said economists is that land tax is the only tax that does not distort market relations - indeed it returns them to a free market equilibrium as it removes the speculative component of rent-seeking. The tax is Pareto optimal by ensuring allocative efficiency. In stark contrast to all other levies, the payment of site rental retards neither productive activity, nor the supply or demand of resources. It is considered just, as the burden falls entirely on the user of the resources. Because "unimproved" also means "undamaged", it can incorporate ecological tax reform - and by itself it ensures that there is strong motivation to keep the aggregate human footprint on the environment as small as possible. It is arguably not even a tax, for the word itself implies something that is onerous on activity, "a taxing burden". Indeed, it liberates, providing the opportunity for a guaranteed minimum income for all, and for all to receive the fruits of the labour without the government "stealing" their earned income.

Practical Tasks and the Henry Review in Australia

If the empirical evidence consistently shows that this public finance policy works, and almost all economists say that the theory is right, then the practical task is to implement it. This means changing the tax system raising 100% of public revenue from economic land, and 0% from the improvements of labour, capital. There is no suggestion however to introduce such a scheme "overnight", even if the significance of the change can truly be considered "revolutionary", insofar that an entire parasitic economic class would no longer have the systematic foundation to exist. Of course, there are a small number of people who are "asset rich and income poor", often those who have retired from the workforce. Opportunity must be provided for such individuals to shift their investment base.

Ken Henry, Secretary of the Department of Treasury in Australia since 2001, has recently released a major review of the taxation system in that country [12]. Apart from including an increase in superannuation, the development of a infrastructure fund and significant depreciation concessions for small business there are two very major components which affect this discussion. Firstly, there is a 40 per cent resource rent on mining companies receiving above normal profits. Secondly, there was the proposal of removing state stamp duties on homes purchases with a federal land tax. The Federal Labor government has approved the resource rent, and rejected the federal land tax.

Undeniably, the resource tax is a good thing; it means that the mining industry will need to become more competitive, more productive, and it will ensure that the population at large will finally receive a fairer share of what naturally belongs to them anyway. The decision on the stamp duties and the federal land tax is, however, bizarre. Stamp duties punish both buyer and seller by increasing the price of a property, reducing the number of sales. It was the Labor Party which for over sixty years had a federal land tax as part of its platform. When the Menzies government abolished the federal land tax in 1953, the Labor leader of the opposition stated: "We of the Australian Labor Party have always believed that the land is the patrimony of the people and that nobody has a complete and absolute title to it ... The land belongs to the people, and its use must be safeguarded and protected at all times ... We have always believed in the land tax, and when happy days come again we shall restore the measure imposing the tax to the statute book of this country." [13]

What can be done about the Labor government's refusal to implement a Federal land tax? Firstly, an organisation called Prosper Australia has established a petition calling for a review on the effect of land prices on home ownership and the ability and effects of the establishment of a Federal Land tax - even if you don't agree with the proposal to establish such a public finance policy, surely a review is worthwhile. Secondly a mailing list entitled "Land and Labor" has been established with the express purpose to lobby Labor politicians to reintroduce the Party's old commitment for the socialisation of land values for the public benefit [14].

Despite all the evidence on how effective, efficient, fair and transforming such a policy can be, the pessimistic words of Clarence Darrow [15] still echo

The single tax is so simple, so fundamental, and so easy to carry into effect that I have no doubt that it will be about the last land reform the world will ever get.

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[1] This is not necessarily the equivalent of the State, famously defined as the body with a "monopoly on the legitimate use of physical force within a given territory". Max Weber, Politics as a Vocation, 1919.

[2] Murray Rothbard, The Ethics of Liberty, 1982. Rothbard argued that because taxation was theft, it was therefore morally legitimate to resist paying it.

[3] Karl Marx, Capital Volume I, Chapter 10, FP 1867

[4] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter 8 and Book V, Chapter 2., FP 1776

[5] David Ricardo, On The Principles of Political Economy and Taxation, 1817. Ricardo may have been wrong on this point as people can be members of multiple classes simultaneously. War for resource exploitation invariably come from a alliance between economic landlords and some capitalists.

[6] John Stuart Mill, Political Economy, Book II, Chapter 2, and Book V, Chapter 2, 1848

[7] Thomas Paine, Agrarian Justice, FP 1797

[8] Macartan Humphreys, Jeffrey D. Sachs, Joseph E. Stiglitz (eds), Escaping the Resource Curse, 2007

[9] Fred Harrison, The Silver Bullet, Chapter 2, 2008

[10] "Big Lesson from A Small Country", New York Times, Oct 1960

[11] Phil Anderson, "Victoria's Muncipal Rating System", Australian Institute of Urban Studies, Victorian Division, 1996

[12] Australia's Future Tax System. Available at: http://taxreview.treasury.gov.au/content/FinalReport.aspx

[13] Arthur Calwell, in Hansard of the Australian House of Representatives, Vol 221, pp 165-170

[14] Petition at: http://petition.prosper.org.au/ Land and Labor at http://isocracy.org/mailman/listinfo/land-and-labor_isocracy.org

[15] Clarence Darrow, How to Abolish Unfair Taxation, 1913

Of State Borders, Wars and Refugees

by Lev Lafayette  (picture above)

The fact that communities have always had policies concerning the movement of people into the lands held by that community should surprise nobody with even a modicum of understanding of anthropology and history. True, there are some rugged individuals who dream of a past or of a future, where one can simply wander with absolute freedom wherever they should like and perhaps many of these are well intention with a desire to interact with nature in solitude. But terra nullius was, and is, a fiction; the principle of freedom of movement is one that must be negotiated and balanced with present occupiers and their claims of jurisdiction. It must be acknowledged that capital will always be more likely to have greater freedom of movement than labour, for capital itself is not a moral actor. With technological and systematic development, such borders have developed from vague marchlands often defined by natural boundaries (forest, river, mountains) to very specific and precise designations, controlling both the movement of people and also the movement of animals, plants, and goods, not to mention the opportunity for rulers to acquire lucre through visa charges, excises and duties.

With the institution of landed property the negotiations between immigrant and established community ceased to be a negotiation between equals with the balanced tipped firmly in favour in the owners of estate. The opportunity now existed for one person or class of persons to acquire the best land to exclusion of the others. If the calculated risk was considered worthwhile, this acquisition was made force of arms in the pursuit of monopoly profit. Wars, both across state borders and within them, have challenged the effectiveness of administrative systems to smoothly operate in some cases, and in others the local jurisdictions have simply had to acknowledge the chaos as a quirky result; a most famous case being Baarle-Hertog (the Belgium exclaves in the Netherlands) and Baarle-Nassau (the Netherland's exclaves in Belgium), where the complexity arises from a number of medieval treaties, land-swaps and sales between the Lords of Breda and the Dukes of Brabant and ratified by the Treaty of Maastricht in 1843.



Whilst such borders seem amusingly anachronistic in a civilised and modern Europe, they underlie a much more serious concern; that fluctuating borders, between and within states, are often the result of violent conflicts which displace huge sections of the affected population, before, during and after the actual conflict leading to the presence of refugees seeking sanctuary. The contemporary definition of a refugee is derived from the 1951 Convention Relating to the Status of Refugees which defined a person who, owing to a well-founded fear of being persecuted on account of race, religion, nationality, membership of a particular social group, or political opinion, is outside the country of their nationality, and is unable to or, owing to such fear, is unwilling to avail him/herself of the protection of that country. The 1967 Protocol expanded the original definition which was specific to "events occurring before 1 January 1951... in Europe". The Convention and Protocol combined do not have such geographical or temporal limits. Until a person is legally recognised as a refugee in a country where they seek sanctuary they are designated as asylum seekers.

Behind these legal definitions is the very real people themselves. At the beginning of 2006, the United Nations High Commissioner for Refugees estimated the total number worldwide of such people at almost 8.5 million at the beginning of 2006. This figure excludes some 4.6 million Palestinian refugees classified under the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), who are the only group to be granted refugee status to the descendants of refugees. Nor do these figures include Internally-Displaced People, those who have been forced to flee their homes for the same reasons as refugees (usually civil war) but remain within their country's borders. At the end of 2006 the number of these persons was estimated at 24.5 million, with some 40% of these being in Africa. Conditions in refugee and IDP camps is typically very poor and are rife with abuse and violence. For the large number of children in such places there is little opportunity for formal schooling. Asylum seekers, apart from often suffering physical wounds, often develop post-traumatic stress disorder (approximately 9% across several studies) and major depression (5%).

A common characteristic of both refugees and internally displaced persons is that the people involved are seeking sanctuary. An ancient times among both the Greeks and Egyptians it was held that a person who fled to a temple could not be harmed without inviting divine intervention. This religious right to asylum was included in medieval European legal codes, originally with King Ethelbert of Kent, c600AD. In modern times, significant numbers of people seeking asylum after the first world war to the establishment of the League of Nations' High Commission for Refugees in 1921, dealing with some 1.5 million people who were fleeing the Russian Revolution and the subsequent Civil War and soon after some 1 million Armenians fleeing the genocide in Turkey. International response however, was not always beneficial. The United States introduced the Emergency Quota Act (1921) and the Immigration Act (1924), aimed at reducing the migration of southern and eastern Europeans. As a result most of the European refugees - principally Jews and Slavs - fleeing Stalinism, the Nazis and World War II were barred from coming to the United States.

Often overlooked is the massive refugee crisis in the last months of WWII and immediately afterwards. During the war itself the Allied forced had created repatriation of over seven million displaced persons in Europe and China. However as Soviet forces advanced towards Germany, some five million German citizens fled northern and western Poland and Prussia. Further, Poland engaged in an ethnic expulsion program an issue further complicated as most of eastern Germany was under Polish administration. Large numbers of Germans were also expelled or left eastern Europe; an estimated twelve million in total and between five hundred thousand and a million perishing in the process.

Other refugee crisis in the second half the twentieth century and in contemporary times begins with the partition of India, leading to the largest movement of persons in history, with some eighteen million Hindus and Sikhs moving from West Pakistan to India with a smaller number of Muslims moving in the other direction. The Algerian War of Independence resulted in some two million Algerians either fleeing into the Algerian hinterland or relocating to France, Morocco or Tunisia, along with some nine hundred thousand European-descended Algerians. Decolonisation also led to approximately one million people of Portuguese descent leaving Angola and Mozambique and the Angolan Civil War caused four million IDPs and five hundred thousand refugees. During the Bangladesh War of Independence in 1971, more than ten million Bengalis fled to neighboring India. Following war and the establishment of communist governments in Vietnam, Cambodia, and Laos in 1975, about three million people became asylum seekers, resulting in the term 'boat people' entering the vernacular. The civil war in Sri Lanka, from the early 1980s onwards, generated over one hundred thousand refugees and almost three hundred thousand IDPs. In the aftermath of the 1994 Rwandan Genocide, over two million people fled into neighboring countries. A civil war in Tajikistan has led to 1.2 million refugees and displaced persons. Africa's instability is so great that countries are often simultaneously countries of origin for refugees and countries of asylum for other refugees; the Democratic Republic of the Congo is the place of origin for over four hundred thousand refugees, but it is also the place of refuge for almost two hundred thousand. In contemporary Darfur, some 2.5 million people - a third of the population - have been forced to flee the homes after attacks by government-backed paramilitaries. The current war in Iraq led to displacement of some 4.7 million persons; 2 million seeking refugee status and the others as IDPs.

The reality is that whilst there are wars, with their heavy foundation in the existence of standing armies and the prospect of monopoly control of natural resources, there will be asylum seekers. Indeed, if scientific expectations have a degree of accuracy, in all probability the twenty-first century will witness huge displacements of people as 'climate change asylum seekers'; those whose homes and livelihood become no longer viable due to rising sea levels, deforestation and desertification, extreme weather, extinctions etc. With these affects monopolistic competition for resources will become greater, leading to more wars and increased numbers of asylum seekers in coming decades. In these circumstances it is probable that there will be a rise among reactionary nationalists who will oppose such asylum seekers, who will support their expulsion and detention and generally seek to overturn the Refugee Convention.

In contrast a policy that is dedicated to maximising human freedom promotes policies that allow anyone to settle in any area subsequent to basic health and security checks, limited by the carrying capacity of the region in question. Indeed, there is a utilitarian argument that refugees should be given priority over general immigration as their needs are greater as will be the change in their circumstances. As for specific settlement locations, these should be determined by smaller jurisdictions, not larger. As the Howard administration in Australia sought to reduce the refugee intake into Australia - and engaged in a particularly racist and heartless program of incarceration, temporary protection visas and even sending naval vessels to prevent the landing of those arriving by boat - many areas of regional Australia expressed great desire for further migrant populations to settle in increasingly deserted townships.

The detention of asylum seekers is another issue that is not going to go away, and it will be increasingly a favoured tool of popularist governments who seek to incarcerate asylum seekers pending determination of their status as a refugee, especially those who arrive by boat. In Australia, such "unauthorised" arrivals have been treated with outcry by a conservative media even though in 2008 the total number people who sought asylym in such a manner was a paltry 3.4%. Australia was the only country that mandated the detention of all such arrivals, and public claims were often made that this would deter people smugglers, although it was never substantiated how punishing the victims would challenge the perpetrators. Because application for refugee status is a universal right, one that transcends local jurisdictions, and the temporal vagaries of politics, the management of such applications should be determined internationally, not by the states in question. In other words, rather than processing of refugee claims and management of detention centres being carried out by states, they should be carried out by the UNHCR.

As a further emphasis on the universal applicability of the claims, concerted international effort needs to be directed towards those countries that are not signatories to the 1967 Protocol. Specifically this refers to a swath of countries across the middle-east and southern asia, including Indonesia, Vietnam, Laos, Thailand, Burma, Bangladesh, India, Pakistan, Iraq and Saudi Arabia among others. Of course, in some of those cases people may indeed be fleeing from the governments of such countries. Nevertheless, the existence of these non-signatories causes problems for neighbouring states, as these asylum seekers are supposed to seek refuge at the first country of opportunity. With the existence of 'non-countries' in between the source and destination, the real or imagined concern of selective choice weakens claims of asylum among the existing inhabitants.

Whilst these three policies - universality of the Protocol, UNHCR processing of asylum seekers, localised settlement of refugees - will certainly serve to provide greater justice for refugee claimants and local communities, reminder is drawn to the original points of this article; that whilst there is the possibility of monopoly ownership over natural wealth, there will be the the impetus for wars both internal and external to states. Whilst this problem remains unresolved, along with the lack of responsibility of damage to the environment, a genuine tragedy of the commons, there problem of asylum seekers, refugees and internally displaced persons, shall remain.

by Lev Lafayette, founder of Labor for Refugees (Australia)

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Isocracy: For Liberty and Common Wealth

above: an image of Lev Lafayette - the author

An Opportunity for the Left

Isocracy is a political philosophy whose time has come. As the last dregs of totalitarian and authoritarian statist socialism have become anachronisms, mainstream politics has become almost entirely colonised by corporate interests as democracy increases loses its honoured attachment to the polis and the formation of genuine public opinion [1]. 'Capitalist democracy' has become the orthodox political position, an acceptable system for conservatives and social-democrats alike; private ownership of the economy, public determination of socially acceptable behaviour. The only recognised alternative to this neo-liberalism is reminiscent of the classic description [2] of the 'dangerous class', the social scum, who have been thrown into existence by the new order. In this case, religious-inspired anti-modernists who through terrorism, the systematic use of violence against non-combatants for a political goal, seek to impose a new totalitarianism which incorporates modern weaponry to enforce the absolute rule of theocratic rulers and and pre-modern prejudices against the ruled.

Where the supposed major conflict is between capitalism and Islamism [3], there exists a enormous opportunity exists for the new left whereby its historical objectives - secularism, republicanism, personal liberty, common wealth, and national self-determination - can reinvigorate the notion of historical progress within the collective human spirit with recognition of the need to re-establish moral reasoning in each and every generation as technology advances. The experience of totalitarianism in the twentieth century shattered forever the Enlightenment illusion of an inevitable connection between technical progress and socio-cultural development, even to the extent that some (e.g., various forms of primitivism) have rejected technological development altogether. Whilst in some cases well-intentioned this is ultimately an idyllic and reactionary approach which abdicates from dealing with the existing social system and technologies, and thus will inevitably fail. More realistically, the most serious challenge is that posed by the claim that history is effectively at an evolutionary end; liberal democracy will become the only - and last - form of government for all States [4].

The weakness with the argument is that it is explicitly tied to the notion of governance through the State and cannot conceive, like many contemporary anarchists, of governance without a State. But the State, as the holder of monopoly on legitimated violence and as an instrument of class rule [5], is a limited institution and one which will inevitably come into conflict with the technological potential, the productive forces, and the social networks that these technologies allow. At that stage of development any State, no matter how progressive it may have once been, will become a deadweight on further social development as its core characteristics require both governance and oppression. Only through overcoming those components of a monopoly on violence and class rule can a society truly become free and the 'withering away of the state' can be achieved [6]. The historic mission of isocracy, "equal rule", with the universal principles of personal liberty through self-ownership and social democracy in the commonwealth is to create such a society in the context of contemporary technology.

Advantages and Limits of Liberal Democracy

This is not to reject the contribution of liberal-democracy as the most developed State system of governance. There can be no doubt that through its founding principles and through the pressure of mass movements, it has provided great improvements in the life, including the highest levels of economic wealth, high standards of education, health, gender equity, the political rights of republicanism, secularism and multi-party democracy. Liberal democracies have, more than any other system of state-government, produced usually professional police and defense forces and it has been well-noted that liberal-democracies tend not to go to war with each other (liberal or democratic peace theory) [7]; as the holders of the most advanced technologies they do, however, engage in invasive wars of other non-compliant sovereign states with increasing civilian to military casualties.

Nevertheless there are systematic limits to liberal-democracy [8] which are difficult to resolve within its own procedures. Firstly, modern industrial requirements towards growth tend to stress the finite ability of the atmosphere to absorb heat. In other areas too, there is a tendency towards environmental negative externalities as various forms of pollution. Indeed, the overall failure of the enhancement of positive externalities (e.g., public infrastructure) and the minimisation of negative externalities has been correctly identified as "private wealth and public poverty" [9]. The supposed solution to these problems has inevitably been onerous taxes on capital and effective corvée labour of workers, further suppressing productive wealth through deadweight losses.

As a related issue, liberal democracy tends to inequality in wealth as it tends towards the monopolisation of natural resources; the treatment of capital and economic land as the same has highly significant consequences, more than any other economic decision [10]. Even a market with high entry costs does not have the same degree of economic suppression and exploitation as necessary goods in fixed supply. On a similar trajectory the institution of formal democracy likewise tends towards a distorted form through the influencing power of mass media and the ratio of elected to electors. This is also results, except where constitutionally protected (e.g., various Bills of Rights), that universal rights are subject to the vagaries of popular prejudice; the tyranny of the majority [11], a particularly important issue for those of minority religions, sexualities etc.

Revolutionary Reformism: The Transition To A Stateless Government

The core propositions of Isocracy - self ownership, informed consent, a common wealth of resource values, decentralised government, civil participation, defensive militia - are fundamental claims which no contemporary state has introduced, even in the most progressive liberal democracies. In theory these items could be introduced, albeit with difficulty, in such systems and as such, . It is possible, barely, that they could engage in a transformation from state-governments to stateless-governments. This possibility is the basis of a rejection of "lifestyle anarchism" [12] or the sort of Marxist-inspired refusal to participate in actual governance itself. But even if such transitions were, by some miracle, to occur in a legislative sense, this would not provide the necessary universal permanence of the claims which are supposed to transcend whatever political representatives are in power.

In order for this to occur two components are required [13]; first there must be involvement from the population with a dedicated view of rebuilding society, establishing novus ordo saeclorum through a constitutio libertatis dedicated to both "positive" and "negative" freedom, which is only possible through localised civil participation. The second component, and as direct result of the first, is that this new society is built not from some proclaimed revolutionary vanguards or by an elite cadre, which will inevitably hijack the impetus, but by the "organic intellectuals" arising from the conflict between social relations and productive forces. Indeed, the genuine purpose of revolutionary organisations is not to implement revolutions but rather to give people the know-how to run their own organisations[14] as ultimately the purpose of all political organisations should be to create the conditions where they are no longer needed.

Endnotes

[1] Jürgen Habermas, "The Structural Transformation of the Public Sphere", Polity, 1989 [FP 1962]
[2] Karl Marx, Frederich Engels, "Manifesto of the Communist Party", FP 1848
[3] Benjamin Barber, "Jihad vs. McWorld", Crown, 1995
[4] Francis Fukuyama, "The End of History and the Last Man", Free Press, 1992
[5] Max Weber, 'The Profession and Vocation of Politics', in "Political Writings", Cambridge University Press, 1994 [FP 1919]
[6] Vladimir Lenin, "The State and Revolution", FP 1917, gave numerous, and ironically prophetic, warnings on the requirement of governing institutions to "lose their political character" and for the monopoly of violence (the armed forces, police) to be replaced by civil militia if any revolutionary government wished to avoid becoming an oppressive state.
[7] Bruce Russett, "Grasping the Democratic Peace", Princeton University Press, 1993 and Michael W. Doyle, "Ways of War and Peace", W.W. Norton, 1997
[8] For a thorough assessement see Jürgen Habermas, "Legitimation Crisis", Beacon, 1975 [FP: 1973], See also Jürgen Habermas, Niklas Luhmann "Theorie der Gesellschaft oder Sozialtechnologie", Suhrkamp, 1971 for further discussions on the capacity of the system to resolve these matters.
[9] John Kenneth Galbraith, "The Affluent Society", Houghton Mifflin, 1958
[10] An issue noted by most economists but most fully argued by Henry George, Progress and Poverty, FP 1879.
[11] As first described by Alexis de Tocqueville, Democracy in America, (two volumes), FP 1835 and 1840
[12] Murray Bookchin, Social Anarchism or Lifestyle Anarchism, AK Press, 1995
[13] Both these requirements are described in detail in Hannah Arendt, On Revolution, Penguin, 1990 [FP 1963]
[14] In this sense, the mutualist tradition is one of the most revolutionary of all. cf., Kevin Carson, Studies in Mutualist Political Economy, BookSurge Publishing, 2007 FP [2004]

Revolutionary Reformism

nb: immediately below this contribution of Lev's is another essay by Wes Bishop. Wes considers the question of reform or revolution from a liberal perspective. It's well worth the read.

Introduction to the problem

The debate of revolutionary or reformist approaches to social change have been argued through the ages and has become most pertinent since the bourgeoise revolutions and in particular with the development of democratic reforms during the latter half of the nineteenth and the first half of the twentieth century. The debate certainly gained prominence with the the unification of the revolutionary Social Democratic Workers' Party of Germany, led by Bebel and Liebknecht, and the reformist General German Workers' Association originally established by Lassalle. One of Marx's greatest works, Critique of the Gotha Programme (1875), in which he firmly established his 'third phase' (libertarian socialist) thinking, is a response to that unification. In the turn of the twentieth century the debate continued on one side of Eduard Bernstein's Evolutionary Socialism (1899) and Rosa Luxembourg's critique, the equally bluntly titled Reform or Revolution (1900).



To give a very simple summary, the revolutionary perspective argued that socialism can only be won through the forced overthrow of the ruling class, whereas the reformist perspective argues that socialism can develop over time with the gradual institutionalisation of more democratic rights. Related topics include political disposition of varying degrees of conservatism versus radicalism; debates over the psychological effects of State institutions, from insidiously corrupting to subtly influential; of political realism between principles and pragmatism; of class relations, conflict and the capacity of different classes to implement social change; in political organisation, between vanguard elites versus mass parties, and, on the highest level, the debate over the foundations of society itself whether natural, technological, institutional, relations, or ideas.

Of course, there is no suggestion that the following is anything but a brief sketch to the problem, a somewhat frustrated expression of personal experiences in both reformist and revolutionary politics, a discussion of the purpose of a revolutionary approach, and a conclusion that hopes to transcend some of the common problems through 'revolutionary reformism'. The notion of transcending, or overcoming, or even better still to use Hegel's phrase from the dialectical method Aufhebung is quite deliberate, in contrast to the erroneous assertion of a 'synthesis' through partial adaption of the thesis and antithesis. As much as Trotsky argued against "No common platform with the Social Democracy, or with the leaders of the German trade unions, no common publications, banners, placards!" from a revolutionary perspective he was also prepared to argue in favour of co-ordinated action "March separately, but strike together! Agree only how to strike, whom to strike, and when to strike!" ("For a Workers' United Front Against Fascism", 1931).

In decades of political involvement I am yet to see Trotsky's dictum seriously taken up by self-proclaimed revolutionary organisations in advanced capitalist states. Determined not to dirty their hands with actual governance, they are hopelessly split on relatively minimal differences and prone towards infiltrating social movements for the purpose of recruitment, rather than social change itself. The revolutionary assertions bring no comfort either; political programmes which are ill-considered and idealistic. By the same token, equal condemnation but of a different sort, can be levelled at reformist organisations. Highly institutionalised, they typically avoid involvement in extraparliamentary activism to engage in the byzantine labyrinth of State power for minimal and specific changes rather than seeking the systematic basis for the problems to begin with; as Henry David Thoreau remarked in Walden (1854): "There are a thousand hacking at the branches of evil to one who is striking at the root".

Revolution for What?

For all the discussion involved in the debate of revolution or reform, rarely is the meaning of revolution, the purpose of revolution, or the the causes of successful revolutions addressed. An exception to this is Hannah Arendt, whose classic study On Revolution (1963) is required reading. We understand, of course, the term revolution from its origins in astronomy but often the metaphor of a cyclical returning is avoided. This should not be the case, for the purpose of the cycle is a returning to fundamental values, the "organising principles of society" (to use Jurgen Habermas' term from Legitimation Crisis, 1973). Correctly identifying what these organising principles are should determine if change is essential and therefore determine, likewise, whether revolution is a necessity.

The usual Marxist-inspired evaluation of this question is that our society is a capitalist one, where the means of production are held in private hands and that this is the foundation of everything else that follows. Marx's famous distinction between the social relations of the economic base and the legal and political infrastructure (c.f., Contribution to A Critique of Political Economy, 1859) is the foundation of such an analysis. The argument is that regardless of varying degrees of liberalism in a society and modest victories by reformists, it is still fundamentally a capitalist one, which ultimately must be overthrown by revolution. Despite its merits and insights, there is fundamental problems with this analysis. The "economic base" is a conflation between the social relations of natural resources and those of human labour; an error in differentiating between the two results in a confusion of economic classes and, as a result, political economy.

This is no superior source to understanding political economy of course, than the classical school of economics who dedicated significant time to the question. The debate which ran from the French physiocrat Turgot, to Adam Smith and finally to Henry George was ultimately unambiguous; that individuals can belong to multiple economic classes that are workers, capitalist and landlord, their contribution to production is labour, capital and land, their receipt is wages, profit and rent. Moral justification was sought - and found - in the return to wages and profit, but not in the case of rent. Yet the conflation of land and capital into a single unit of analysis by both vulgar Marxists and the equally vulgar neoclassical economists blunted this insight in favour of revolution and war that dominated the first half of the twentieth century.

Ultimately, "social relations" are political rather economic. Economic systems rise from political systems rather than the other way around. In this sense, the liberal-bourgeois revolutions of the eighteenth century, specifically the French and American, provide insight to this question by looking at their results. Even considering the particular objective circumstances (the French republic surrounded by enemies, the American with but a modicum of local opposition), the relative success and failure of the two can be assessed in terms of their approach to liberty and the way they sought to establish a new society. In general, the more successful elements where those which ultimately provided the greatest respect to "negative freedom" and left firm foundations for the individual to engage in their own "pursuit of happiness" - such deliberate limitations on government and opportunity set as constitutio libertatis providing a novus ordo saeclorum (these being chapter headings from Arendt). Without this orientation, revolutions that impose a supposed 'general will' of society onto others by an elite inevitably end in disaster; "Thinkers prepare the revolution; bandits carry it out." (Mariano Azuela, The Flies, 1918). Unless the State, as Lenin pointed out in his 'almost anarchist' text State and Revolution (1917), begins to wither away from day one with its machinery smashed, the old diseases of control and authoritarianism will arise again (an unfortunate prediction with the Soviet Union).

Although those on the political left are often loathe to admit it, the most successful revolution of modernity has been that of the United States. When neo-conservative forces attempt to impose their will on the populous, they find that the constitution stands in their way. Sometimes they do have victories - such as the subversion of the Second Amendment, which was designed to minimise the influence of a standing army and imperialist wars. Often they must dig in their heels and make clearly ridiculous interpretations, such as the application of obscenity laws as a 'public health' issue over the First Amendment and, even more so, the Dredd Scott case where the courts determined - at least for a while, as it helped lead to the U.S. Civil War - that the Founding Fathers could not have possibly meant negroes were to be included in the opening of the Declaration of Independence ("We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness."). Undoubtedly one day there very well might be a U.S. government that so ignores the constitutional rights of the people that violent action may be needed to remove such an administration from office; but even the possibility of such an event does not deny the strength of the lasting institution of a constitution founded on the principle of liberty.

Liberty and Commonwealth

The purpose of political action is freedom, whether that is in the negative sense, reducing the ability of the State to interfere in the free and consensual relations of autonomous citizens, or in the positive sense, whereby the government provides freely available enabling infrastructure, both social and physical, to its citizenry. As fiscal policy, provision of the latter does not necessarily require the reduction of the former, although it is certainly the case at the moment. The abolition of the landlord class, and the socialisation of resource rents at a freely-determined market value can certainly provide positive freedom without the current (effective) corvée labour of workers and investor to the coffers of the State. It also provides the most workable incentive structures to ensure environmental sustainability.

Likewise, the purpose of all political organisations is to create the conditions where they are no longer needed. Justified cynicism may be given to Pitt The Younger's remark that one day parliament would complete all the laws necessary and thus dissolve itself, but as a task for political radicals the spirit of this intent is requisite, as the strength of liberty depends on the involvement of the public. 'Vanguardism' by a cadre elite, is insufficient to guarantee that a revolutionary spirit is not hijacked by authoritarian opportunists, regardless of perceived advantages in a division of labour. It is not therefore "the Party" that should seek to achieve power on behalf of the masses, but rather such political parties should be engaging in a constant campaign that they masses become their own vanguard, led by their own "organic intellectuals", to use Gramsci's phrase. Ideally, the Party should cease to exist after a revolution; if it has fulfilled its revolutionary potential, the people will know how to manage their own affairs.

In conclusion, with a interesting management and economics intepretation, Mario Ferrero's recent essay Revolution or Reform? Socialism's Dilemma as Rational Choice Problem (in the journal Homo Oeconomicus, 2004) is worthy of reference. It argues that the revolutionary party is a producer cooperative that requiress a parallel commercial reform sector to provide worker incentives and consumer trust. Success in the reform sector, along with a sorely lacking proper use of public democratic institutions (Georg Lukács's The Question of Parliamentarianism, 1919 is critical reasoning in this regard) creates loyalty and attachment to those more radical proposals not yet implemented. In a liberal-democratic state (and not dictatorships which do require revolutions), with their supposed organising principle based on personal freedom and social democracy, there is far greater opportunity for extending these principles to their logical conclusion.

Political Economy and the Economic Crisis Part II

Political Economy and the Economic Crisis Part II

by Lev Lafayette


What Should We Do?

The very thing that is required is a recognition of the importance of normative economics and political economy in the discussion of contemporary economics. For these essentially moral questions - who owns what, and why - do have highly significant positive effects as well. If ownership of the factors of production favours a class in exchange-value greater than their contribution to the production of use-value then the economy as a whole will inevitably suffer.

The notion of factors of production and economic classes is poorly understood today. It is a field of inquiry largely ignored since the development neoclassical economics in the latter part of the 19th century. Whilst providing important contributions to price, value, scarcity and studies in marginal utility, the conflation of land and capital into a single entity has all the signs of a tragic mistake. The neoclassical economists contributed to the conflation by converting land into capital, essentially an accountant's recording rather than an economist's recording. But also some rather dogmatic and vulgar Marxists could only see the existence of the worker and capitalist classes. Finally, the conflation was partially due to the influence of American functional sociology which investigated relationships and activity on the basis of income, rather than ownership of the means of production.

In contrast all classical economists, including Adam Smith, David Ricardo, Karl Marx, Léon Walras and John Stuart Mill, recognised the distinction between the factors of production (land, labour and capital), the respective sources of income derived from each of these factors (rent, wages and interest) and the respective economic classes (landlord, worker and capitalist); it is noted of course that an individual can be a member of multiple classes simultaneously and proportional to the way their income is derived. In addition to this it is useful to distinguish between public and private ownership of the factors of production, or socialism and capitalism, and between planned or market mechanisms for exchange. Another exogenous dimension refers to a political subsystem that operates in parallel to the economic; by which varieties of dictatorship may be contrasted with varieties of democracy.

Rather than a "mixed economy", where the public and private ownership is appropriately allocated along with planning and market mechanisms is not entirely unfair to suggest that the world system is a "muddled economy", a quasi-political system where productivity and efficiency come a poor second to supporting an increasingly powerful alliance of a section of the capitalist class with the landlord class. Recognising these class relations brings the normative question; on what possible basis is earned income justified? With the assumption of honest provision of labour and the honest acquisition of capital, the moral right of wages and interest can be ascertained; but the same cannot for the income of the landlord class. Their income is acquired entirely from the ownership of a pre-existing resource which is necessary for other economic activity; in effect the landlord derives their income for workers and capitalists whilst providing nothing in return.

The long-recognised solution to this injustice is the public socialisation of income according to site-rental market value, and the use of this income for public expenditure, instead of the range of onerous and inefficient taxes placed on workers and capitalists and all of which come with both a high administrative cost and deadweight loss through the restriction of trade (land value taxation in contrast suffers from neither of these features). Economists are nearly unanimous that as much public income should be derived from land values and use of natural resource as possible; and as little as possible should be derived from labour, capital and transactions. The normative effect should be the abolition of the premodern landlord class as the normative economic priority for advocates of socialism and capitalism alike.

Such a normative claim is not made however without reference to positive effects. With both the incentive to seek rental income from not engaging in productive activity, economic activity is redirected towards the actual production of goods and services. This raises both the appropriate normative and economic models for ownership and distribution in all these cases which, by necessity, must be abstracted. A general principle that can be suggested here is that the closer that a good or service is to being a natural monopoly the greater the requirement for centralised socialisation as a public service, and the close the good or service is to being in accord to perfect competition (including monopolistic competition), the greater the requirement for decentralised private ownership in a variety of forms (including cooperatives etc). Likewise the smaller the number of input and output variables the greater the possibility of accurate planning, whereas the greater number of such variables suggests efficacy of a price mechanism to deal with issues of relative scarcity and opportunity cost. The aforementioned public income should be spend entirely on matters of transparent public goods for the general benefit; the mitigation of negative externalities (e.g., pollution), the enhancement of positive externalities (e.g., networks, education).

Whilst if one wants to understand economics, they should study it. In the study of economics one cannot avoid finding a point where public policy seems totally at odds with the view of nearly all economists. I refer to the way that public income is derived (invariably by taxes on labour and capital), and the way that the private ownership of land (used here in the economic sense of all natural resources) is endorsed. John Locke was the first to suggest that one is the legitimate owner of their labour, and the improvements that they make to nature. Following a stricter class analysis, David Ricardo expressed it rather bluntly. "[T]he interest of the landlord is always opposed to the interest of every other class in the community."

Today, nearly every economist in the world, whether liberal, conservative or radical, agrees that public finances should be largely derived from resource rents. The radical capitalist Milton Friedman argues that "In my opinion the least bad tax is the property tax on the unimproved value of land", whereas the neo-Keynesian Paul Sameulson argues that "pure ground rent is in the nature of a 'surplus,' which can be taxed heavily without distorting production incentives or reducing efficiency". The conservative Robert Solow has claimed "For efficiency, for adequate revenue, and for justice, every user of land should be required to make an annual payment to the local government equal to the current rental value of the land he or she prevents others from using", whereas the radical antifascist Jewish refugee and economist Franco Modigliani stated "It is important that the rent of land be retained as a source of government revenue". Finally, the maverick socialist William Vickery claims "While the governments of developed nations with market economies collect some of the rent of land, they do not collect nearly as much as they could, and they therefore make unnecessarily great use of taxes that impede their economies - taxes on such things as incomes, sales, and the value of capital goods."

Each of the people just quoted are Noble laureates in economics. One can reasonably make the assumption that they have some idea of what they are talking about. If that is insufficient evidence however, consider that in 1991 no less than thirty five of the top economists of the United States - all either Noble prize winners, professors, or deans and across the political spectrum - wrote to to the then President of the Soviet Union Mikhail Gorbachev urging him in the transition to a market economy to retain public ownership of land and to derive a market-based common income from land-rents. Unfortunately, in the replacement of Gorbachev by Boris Yelstin the latter capitulated to demands to a cheap sell off natural resources, the results of which are empirically and readily available; mass impoverishment and even malnutrition in what used to be the second most powerful nation on earth.

Those who labour for wages and those who invest for interest, are indeed productive and beneficial. But the landlord class, increasingly powerful as the revolutionary aspects of capitalism are diluted into a new feudalism mediated by money rather than genetic lineage, produce nothing of value that was not already present in nature And so it is today that the productive worker and the productive capitalist are both fettered by taxes, tariffs, and rents, onerous on their ability to provide goods, services and create wealth. And so it is, more and more aggressive wars are fought for the control of natural resources with horrendous civilian causalities.

What happens when more and more people try to get into the landlord's game, which was called 'Monopoly', for good reason?

What happens when the banks start lending money with cavalier disregard at extremely low rates and lax conditions, with with the assumption that "someone else" will engage in the productive labour and investment that will give a location a good rental price?

What happens when fewer and fewer invest in new business, industry, new goods, and new services? What happens when the expected returns from "somebody else" do not materialise?

'What happens?' indeed. The monopolists find themselves with a debt that they cannot afford to repay. What was once marked as an asset by the banks suddenly becomes written off. Confidence is lost, industry fails, economies shrink, unemployment for masses loom. And like pigs the monopolists come squealing once again before the our governments. They plead for the government, which means us, to prime the printing presses and pay for hundreds of billions of bad assets, under the assumption that "confidence" and "stability" in the credit market will be recovered - and so they can exploit both worker and investor yet again.

That is what happens.

Political Economy and the Economic Crisis Part I

Political Economy and the Economic Crisis Part I

by Lev Lafayette


What Is This Economic Crisis?

A crisis is something to be taken seriously. The word is often used haphazardly, and that denigrates its importance. So, by means of introduction, I will use the classic multi-disciplinary definition expressed by Jurgen Habermas in the opening pages of "Legitimation Crisis".

"In medicine it represents a point where, regardless of individual will, the physiological system of an individual is tested to capacity in its ability to heal. In literature, it is the point of the narrative where the protagonist either successfully confronts their antagonist, be that
the setting, circumstances or another character or, in the case of tragedy, their own weaknesses. In the environment, or social systems, it is also sensible to speak of crises, points in time and place where the capacity of the system is faced with a "life or death" test in its
abilities to continue."

An economic crisis is one of several potential crises in a social system. Typically they are described as a variety of financial crises; a sudden rush of withdrawals from depositors, leading to a run on the banks., a stock bubble, where the price far exceeds the present value of future income., or when a government is forced to massively devalue its currency due to speculative attack, or it fails to able to pay back its own bonds; the latter two often result in a capital flight. Such financial crises often result in an economic recession, usually defined when a country's Gross Domestic Product shrinks for two successive quarters. By way of example, in the third quarter of 2008, the U.S. economy shrank by 0.5%, (although that was after a 2.8% increase in the second), the economy of the UK by 0.6% in the same period, Germany by 0.5%, and Japan also by 0.5%. Of those major economies, only Japan technically fitted the description of currently being in recession at that time.

Such a decline doesn't sound like much; a drop of half a percent, or even a few percent, of a country's GDP isn't what one would consider terminal case, especially from such a high base. But there are some other considerations here. Firstly, this is truly an international problem, rather than one of localised examples; even the countries which are not in recession have very slight levels of growth. Secondly, there will be other major economies which are expected to fall into recession, such as Russia and Canada, and whilst the Chinese economy is expected to
grow, albeit at a slower rate, their manufacturing sector has just had three consecutive months of negative growth. Thirdly, this problem is expected to be lasting, probably at least until 2010, due to extremely low consumer confidence and falls in private consumption. Most importantly however, the reason why using the term 'crisis' is not hyperbole, is due to the systematic cause.

What Happened

The start of the current economic problems first became evident as far back as the end of 2005. That is when there was a sudden halt to the rampant increases in prices in the US housing market. Throughout 2006, as prices remained flat, however the share market did not reflect this. In 2006 the Dow Jones Index actually increased approximately a quarter. In 2007 real-estate prices faced significant declines and foreclosure activity increased by 79%. Twenty-five subprime mortgage estate lenders went bankrupt, including the largest lenders such as New Century Financial, American Home Mortgage and Ameriquest. The largest U.S. mortgage lender Countrywide Financial narrowly avoided bankruptcy by borrowing $11 billion from other banks, the Internet banking pioneer NetBank (not to be confused with the Commonwealth Bank of Australia service of the same name) went broke, whereas across the big pond, there was a run on the Northern Rock bank, which was eventually put into public ownership in 2008.

Amazingly, the stock speculators seemed to remain ignorant of the old adage of a collapse in share prices following a downtown in the real estate market, even though the financial collapse in South and East Asia in 1997 should have been in recent memory. Instead, the Dow Jones Index increased even further, from 12,643 in January to 14,093 at the end of October; although for most of this time the price of natural commodities, especially oil and food prices, had been increasing significantly. The price per barrel of crude oil increased from just over $40USD at the beginning of 2007 to over $130USD in the middle of 2008 (it now below $40). Between the start of 2006 and 2008, the average world price for rice rose by 217%, wheat by 136%, maize by 125% and soybeans by 107% - all of which had a dramatic effect on the poor of development countries.

The 2008 new year started jittery with all share market gains of the previous year being wiped out. A series of arrests for fraud shook the mortgage industry in the middle of year. The Bear Stearns Companies, which had been one of the largest global investment banks, was caught in
this operation and it's stock value went from a high of $133.20 to a low of $10 per share when it was purchased by JPMorgan Chase. When added to a massive reliance of the mortgage lenders to Credit Default Swaps, which insure debt holders against default, investor confidence was rather suddenly wiped out. The U.S. government was required to nationalise the Federal National Mortgage Association ("Fannie Mae"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac") in September. Combined, they owned or guaranteed about half of the U.S.'s $12 trillion mortgage market. Soon afterwards, the financial services company Lehman Brothers filed for bankruptcy, despite holding assets approaching $700 billion dollars. Merrill-Lynch despite having a trillion dollars in assets, had such a poor revenue stream (negative $60 billion in 2007), that it was purchased by the Bank of America for a mere $50 billion. Goldman Sachs and Morgan Stanley survived, in a manner of speaking, by converting their status from an investment bank to bank holding company.

As the U.S. government struggled to raise support bailout, the Benelux Fortis bank required half nationalisation to the tune of €11.2 billion (US$16.3 billion). The French-Belgian bank Dexia required a government loan of €9 billion. Eventually the U.S. Congress passed its bailout
plan, which included a guarantee to bank deposits to $250,000 and included $100 billion in tax breaks. Bank deposit guarantees were also put in place by the governments of most European countries, such as Germany, Ireland, and the U.K. Wachovia, which had been the fourth
largest bank holding company in the U.S., was acquired by Wells Fargo. Russia was twice forced to suspend its trading exchanges in October, due to dramatic falls. The UK government made £25 billion available to major British banks as preference share capital, or permanent interest bearing securities, as form of partial nationalisation; in December it was revealed that the Royal Bank of Scotland and HBOS (Halifax and Bank of Scotland) had been "only hours away from being unable to open for business". By November 20, the Dow Jones had fallen to 7,507 - that is, approximately half of its value from October 2007. Ford, General Motors and Chrysler were provided an estimated short-term $15 billion bail-out. Although not a major economic player on a world scale, the Iceland the stock exchanged fell by more than 90% and with banks there holding 80% of their €50 billion foreign debt during 2008, all of Iceland's major banks were put under public administration; the estimated cost to the Icelandic economy of the financial collapse has been put at 75% of the country's entire GDP for the previous year.

The crisis, so named, is obviously on-going - on Friday the Bank of America shared price slumped 20% and Citigroup 18% - and the preceding material provides some idea of the scale of events. There have been three main strategies to deal with the problem, which I can be described as the Bush administration approach, the European approach, and a proposed Obama administration approach. The first, constituting roughly $1 trillion for a $14 trillion economy, was a set of deposit guarantees, stock purchases, tax breaks and direct aid. However when Associated Press contacted 21 major banks which received the bailout, none of them could give specific answers on how much has been spent? What it had been spent on? How much was being held in savings and what's the plan for the rest? Thomas Kelly, a spokesperson for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that [information] to the public. We're declining to."

In contrast the European and Obama approach is, in different guises, forms of Keynesian government intervention as social liberalism or social democracy. It involves re-regulation of the financial sector, the purchase of preferential shares or outright nationalisation on one hand
and one the other, as expressed by President-elect Barak Obama, a massive government expenditure in public works and infrastructure, on electrical grids, on public transport, on dams and investment in alternative fuels, expected to be valued at another $1 trillion dollars,
although the US Federal Reserve chair, Ben Bernanke, has warned Obama that this may not be enough. Nevertheless after several years of significant neglect in this area the intervention will undoubtedly assist those most dependent on improvements in public goods and thus provide positive externalities to the US economy as a whole. Comparison with Franklin Delano Rooselvelt's "New Deal" program have, of course, already been made.

nb: 'Part Two' will follow soon.