A Speedy Tsunami Recovery? It's Possible!
by Fred E. Foldvary, Senior Editor
Amidst all the news about the aid to repair the damage from the tsunami, a small kingdom by the Indian Ocean has been utterly ignored. It's time to rectify this and let you know the good news about how this kingdom recovered swiftly from a previous earthquake. It is the kingdom of Chkianguk (pronounced ch-kyan-GUK). The kingdom is so little noticed that even Google can't find it, but its amazingly speedy recovery has very important lessons for people who would rather not be unemployed, hungry, destitute, and homeless.
An economist by the name of Eleutheria Hermes happened to be on vacation in Chkianguk when the earthquake struck. Since Chkianguk was impoverished and undeveloped prior to the disaster, and little outside aid came in, the king of Chkianguk was desperate. He asked Hermes for advice on what to do, and since the king was the absolute ruler, he didn't have to worry about political opposition. Professor Hermes advised the following policy, which was immediately adopted.
Chkianguk owed $1 billion to the World Bank and IMF. The king decreed that Chkianguk was repudiating this debt. This was no mere suspension of interest payments. The king said the debt was now null and void. The justification for cancelling the debt was that the IMF and World Bank had given him misleading, economically damaging advice, according to Hermes, and this bad advice had put Chkianguk ever deeper in debt. The interest Chkianguk was paying would now go to reconstruction.
Secondly, the king decreed that all taxes in Chkianguk were now immediately abolished. Dr. Hermes had explained that taxes hurt production and would impede reconstruction. "Chkianguk is now the first country on earth to be totally tax free!" declared the king. "Hosanna!" exclaimed the people, which in Chkiangukese means "hurray!"
But where to get revenue for government? Following the advice of Hermes, the king established neighborhood associations in each provincial and city district. Landowners who wished to could join the association. In exchange for monthly assessments or dues, they would obtain security protection and access to the courts. The associations would finance the local streets, park, fire protection, and schools, or these could be provided by private enterprise. The assessments would be based on the site values of each property, excluding the value of any buildings.
Those landowners who did not wish to join the associations would receive no services, including security protection. They would be outside the law, and the government would issue lists of landowners where were not members. If a thief entered and stole or destroyed his property or injured him, that would not be a concern of the government. If the nonmember was a landlord, his tenants would also not have protection. The association would also put up a barrier so that a garage at the site would not have automobile access to the street.
The neighborhood association boards elected representatives to the provincial legislatures, and these legislatures sent representatives to a national parliament. But it was not an anything-goes democracy. The king enacted a constitution which had these permanent statements:
1) Every citizen of Chkianguk is individually and equally sovereign, and government shall have no power over any peaceful citizen other than that voluntarily delegated by that citizen.
2) There shall be no prohibition on any act which does not coercively harm others with the use of force or fraud. Mere offenses not involving invasions shall not be construed as harm.
3) There shall be no taxation of labor, trade, exchange, or produced wealth.
4) The rent from natural resources shall be distributed reasonably equally to all citizens.
The king held a national vote on the new constitution, and 96 percent voted in favor. According to the constitution, the site-value assessments were divided into two categories. The first would be what Hermes called "civic rental." This was the rental value of sites due to the goods and services provided by private enterprise and the associations and governments. These rentals would go directly to the providers. The second category was "natural rent," and that would be paid to the parliament, which would distribute it to all citizens in equal payments, implementing the fourth principle.
The king also asked Hermes about what to do about the national currency. The kingdom's money unit was the chkiang, which had become terribly inflated. Dollars, euros, and yen also circulated in the underground economy. Upon the advice of Hermes, the king's post office issued "eternal stamps" that would always be valid for first-class postage. The stamps had no denomination. They were sold for the current postage rate, 1,250,000,000 chkiangs to mail a letter. Many Chkiangukians bought the stamps as a hedge against inflation, since they would always have value for postage.
People then started to use the eternal stamps as money. Entrepreneurs sold small plastic holders for the stamps. The king then decreed a new currency, the Chkianguky Post, which was equal in value to one eternal stamp. The Chkianguky Post quickly replaced the old inflated chkiangs. Then, following the advice of professor Hermes, the king decreed that no more Posts would be issued, and henceforth, the private banks would issue money.
Many new banks were established. They issued private bank notes denominated in Posts and convertible into eternal stamps or the government's Chkianguky Posts. If a bank issued more of its notes than the public wanted to accept, the notes would be returned for redemption, which prevented the inflation of the Posts. But people were suspicious of notes from little-known banks, so soon only the notes from a few well-known banks with good reputations circulated, and the other banks mostly used those notes as currency.
With sound money and no taxes on wages, profits, or sales, and no trade barriers, many new enterprises were started. Most Chkiangukians joined a neighborhood association, since those who did not join suffered from theft and assault. Landowners had to pay an assessment regardless of how they used their land, so they quickly put it to best productive use. Investment poured in from abroad, since without taxes the return on enterprise was higher, although foreigners did not buy land, since after paying assessments there would be little gain from just land.
Rather than going to purchase expensive land, loans went to pay for capital goods -- buildings and machines -- and for hiring and training labor. The schools were either private or provided by the neighborhood associations. With no taxes on labor and a share of the rent, folks found that they could afford education, medical services, housing, and food.
When Eleutheria Hermes departed, they Chkiangukians held a big festival for him. Hermes then returned to his home in Nirvanaville in the province of Mercury in the land officially known as Hydrargyrum (HG for short). But the Chkiangukians learned that, strangely, the world did not welcome their swift recovery. The chiefs of the United States, European Union, Japan,Russia, China, and India issued a joint statement deploring the public finance and banking privacy of Chkianguk. The exclaimed that it was an unfair tax haven, in violation of international attempts at tax equalization. "We will not tolerate unfair tax competition!" declared joint statement.
Chkianguk was expelled from the United Nations and the World Trade Organization. After the king died, there were calls to change the constitution and be like the other countries, but there was a problem, because the people had adopted the four principles, which could not be changed. But they found that despite the disapproval from the governments of other countries, private enterprise continued to flourish, invest and trade, and they were much better off not being restricted by the global tax cartel.
The Chkiangukians are puzzled as to why other countries have not followed their fine example. It's not the first time such a model has been ignored. Few know of the success of the German colony of Tsingtao [Qingdao] [1898-1914.]
Here was a place that demonstrated in practice that public revenue only from land rent would stimulate rapid growth, yet the chiefs of other countries ignore it and deplore it. It is a puzzle of the ages. If you can explain it, I'd like to know the answer.
-- Fred Foldvary
Copyright 2005 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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