Realty and Financial Reality

By Charles Pinwill, 8/6/2022.

Until Robert Ardrey published his work The Territorial Imperative, the obsessive urge to acquire real estate was generally regarded as a trait of humanity. It is; but one we share with all creatures. As Ardrey showed, mammals, birds, insects and even worms compete to acquire the advantage of space.  

For decades this has been the foundational urge upon which what we think of as our “capitalist system,” has been built and maintained. How?

Since at least the 1920’s it has been realised by those who administer capitalism (the bankers) and the rare few who intelligently observe them doing it, that industrial accounting has a recurring problem. Costs and prices are generated at a rate faster than are the personal incomes needed to meet them. No, I am not here going to attempt a proof. Later perhaps, but you will probably need to accept this as a working hypothesis if the rest of this essay is to make sense.

My Australian National Profit and Loss Account of March 2022 (published as one of the essays here) shows that the production of consumer products amounted to over $11,000 more per person than the personal incomes distributed to buy them. The problem then became how to find and inject into the economy an additional amount approximating $11,000 per person each year to allow sufficient product to be sold to keep the economy out of recession. For decades there has been a ready answer practiced.

Lending was increased to prospective home buyers until the deficiency of purchasing power was approximated by increased debt money. In countries such as the UK, the US, and Australia up to two-thirds of all the money which now exists began its life as a loan for residential housing.1 This practice of continually inflating residential real estate continues today. Total indebtedness to the credit issuing banking system is the main means of funding the annual increase in the money supply needed to keep our form of capitalist economy liquid and endowed with a sufficiency of purchasing power to continue and minimise recession.

The realisation of this as being the situation began with the writings of C H Douglas and his associates beginning from about 1919. Douglas’s suggestion was that when the community’s purchasing power was measured, and if found to be inadequate, that a National Dividend be declared and paid to citizens as their proprietary right. Banks would continue to finance production to the extent that they wished and were prepared to take responsibility for it, but they would not be permitted to finance consumption increases by increasing the money supply.

In today’s figures as per the National Profit and Loss Account of 2022 quoted above, annual national dividends paid would approximate $44,000 for each family of four persons.

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This of course, opens the question of what policy should be adopted to finance residential dwellings henceforth?

The first principle here is that Banks would not be permitted to finance housing consumption through money supply increases. They would not be inhibited from financing residential constructions, but financing their use (consumption as it were) would be done otherwise.

Here a number of policy changes are needful.

The traditional “Building Societies” once more prolific than now, did not create additional money in financing housing. Depositors surrendered funds to these Societies which became the Building Society’s deposits in the Banks. These funds were used to finance the public to purchase homes quite independently from the banks themselves. They used existing money, not newly created additional money to do so.

Some persons limited their consumption by saving with Building Societies, and others increased their consumption by taking these funds as loans.

By this means the Banks can be prohibited from appropriating the national dividend due to citizens by financing housing consumption with money creations. Making interest received by depositors in building societies tax free may be a useful policy option. 

Other initiatives may be added.

I make no apology for taking a distributist approach here. A healthy society requires the widest possible distribution of property throughout society. The greater the ownership of homes by the families occupying them the greater the general level of responsibility in that society. This is not a policy of taking from Peter to assist Paul, but rather, of instituting policy towards greater and more widespread participation and ownership as a practical policy.

The not so small matter of the $44,000 which would go to each average family each year debt free, and as a dividend payable upon their proprietary interest in their country would answer many a difficulty in encouraging home ownership. Saving would be assisted as would paying the rent while they do so.

Diverting the banks efforts from deliberately inflating house prices to funding their production would of course, greatly aid the supply of housing.

Adding $44,000 per annum to consumer incomes as an alternative to adding it to consumer debt, would, at least in my opinion, completely reorientate society. The possibility of paying off $44,000 of debt each year would markedly reduce family financial stress and leave us more time for helping each other.

Of course, paying a national dividend of $44,000 and also allowing the banks to continue  inflating house prices by a like amount would be highly inflationary. We would be sending $2 to purchase $1 of product. We have to choose between funding consumption in either the one way or the other.

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Other initiatives need not be neglected.

Currently, allowing families in rural and semi-rural locations to donate an acre or two to other family members for separate dwellings is inhibited by many regulations. Why? They usually provide their own water and septic systems at no community cost and build their own access roads. Infrastructure such as is essential in urban areas is not required. Practical measures to assist residential home building make sense. As technology allows working from home easier, why are we limiting escaping to the country?

Of course, all this could go much further. The cost of providing infrastructure to congested urban areas is known.  As a community economy, could we not pay those who choose to live beyond the sprawling cities an amount equal to half the savings we enjoy because they do it?

Thinking about society and its conditions, needs to go beyond that favoured by current banking policy. If we cannot confront the current policy of allowing the banking system to steal the need for increased consumer purchasing power by their imposition of ever-increasing debt, we will have to postpone the future.   

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1   The Bank of England’s website gives the money supply (M4) as of October 2016 and “lending secured on dwellings” as 2,250,436 and 1,318,911 million pounds respectively, the latter being by that time 58.6% of all UK money in existence.

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