Earlier in my series on a (currently) hypothetical town called Jubilee, I wrote about how to allocate land, by issuing land-use rights to all residents of Jubliee, which they can use as a “currency” to bid in auctions for long-term land leases. I put “currency” in scare-quotes then, but what if the residents actually used the land-use rights as a currency for everyday transactions?
First, the allocation of land-use rights to residents comes into focus as a guaranteed minimum income. It could even be paid in weekly instalments, even if the auctions occur only once per year.
But the curious thing about this guaranteed minimum income is that it isn’t paid for by taxation. So where does the wealth come from?
The wealth comes from the rent value that can be derived from the land; because there’s no permanent ownership of land, no landlord receives the rent value (unless they’ve paid for it in advance, by buying a long-term lease), so the rent value can be distributed among the residents. This is what the equal allocation of land-use rights to residents achieves.
Another thing to note is that this currency is — unlike (as far as I know) every official national currency currently in use — backed by something of genuine value. This currency derives its value from the value of the land.
If you think the prices of goods and services are too high in terms of the currency, you’re free to retain (and even buy) land-use rights, and bid for the comparatively cheap land leases. This will take more currency out of circulation, boosting its value, and lowering prices of goods and services. (Note that it is crucial that the currency is taken out of circulation when it is paid at auction for the long-term land leases.)
If you think the prices of goods and services are low in terms of the currency, you can spend your land-use rights on goods and services, and enjoy them, instead of the land leases you would otherwise bid on at auction. This keeps more of the currency (which is constantly being issued) in circulation, lowering its value, bringing it back to a level that fairly represents the rent value that can be derived from the land.
Now, as I understand it, one of the criticisms of backed currencies (such as those backed by a gold standard) is that they can exacerbate recessions and depressions. When people are trading with each other less often, they’re probably mining and refining less gold, bringing currency into circulation less quickly (and maybe even taking it out of circulation, for jewellery, dentistry and electronics). This increases the value of the currency people already have in their possession. The expectation of continually increasing value makes people less likely to spend it, and therefore less likely to trade with each other. This brings us back to the start, giving us a vicious cycle of ever-decreasing voluntary cooperation through trading.
But if the currency is backed by land-use rights, rather than by a commodity like gold, this vicious cycle shouldn’t occur. In a recession, people are likely to spend less on long-term land leases, taking less money out of circulation. Because currency is always being issued to residents, more of it ends up in circulation, decreasing its value. The expectation of decreasing value encourages people to spend it now, rather than hold on to it. This tends to increase trading-based voluntary cooperation just when it was decreasing, breaking the vicious cycle.
Currently, central banks try to break recessions by increasing money supply like this. But in Jubilee, the process is automatic, and needn’t rely on fallible central banks.