Three economic mechanisms, or 'tools' could be used in the New Garden City:
In this section we describe the three tools, then how they work together. Our starting point is that the New Garden City is an administrative authority with ability to hold land in trust and to tax.
The New Garden City would raise continuing funds primarily through a land value tax (LVT, or site valuation tax), a levy on the value of land. The valuation is based on only the unimproved value of land, disregarding the value of buildings or other improvements. Current property taxes tend to tax the value of the entire site as a combination of land, buildings, and improvements. This means that a landowner holding an empty plot benefits from the rise in value around him or her, without having to develop or pay tax.
Under a LVT, landowners’ taxes increase on valuable land. An empty plot of land, say Plot A, sitting among Plots B, C, and D will find its tax rising as the other three plots are developed. This encourages landowners to develop the land to generate income, or to sell it to others to avoid rising taxation. The owner of Plot A has to pay as if the land were developed, thus returning value to the community for its ability to increase land use value. If the owner of Plot A finds this too onerous, and is unable to find a buyer, the land can be ‘given’ to the community to commute tax. From these acquisitions, the community land trust is able to aggregate plots and produce longer-term development plans for hard-to-use properties.
LVTs have a long historical record of theoretical support, from Adam Smith to popularization by Henry George, and a wide range of support by modern economists such as Paul Samuelson, Milton Friedman, and Joseph Stiglitz.
One of the difficulties for a New Garden City is proving that long-term policies are stable enough for investment. We would have the New Garden City use policy performance bonds to provide a hedge against policy risk, namely the issuing country’s government or local authority not delivering on its commitments or targets.
Policy performance bonds are a simple idea. A government pays more when it is not meeting its own policy. Inflation linked bonds are a good example. When a government fails to meet its own inflation target, it pays bondholders more interest. In the case of carbon emissions reduction targets, for example, a policy performance bond would be a government issued bond where, in its simplest form, interest payments are linked to the actual greenhouse gas emissions of the issuing country against published targets. An investor in this bond receives an excess return if the issuing country’s emissions are above the government’s published target. A policy performance bond thus provides a hedge against the issuing country’s government not delivering on its commitments or targets. There are a variety of possible bonds just for greenhouse gas emissions, e.g. carbon price targets, renewable energy use targets, etc. The ability to hedge enables the same investor to invest more confidently in projects or technologies that pay off in a low-carbon future because if the low-carbon future fails to arrive the government too bears direct costs of having to pay higher interest rates on government debt.
For the New Garden City, policy performance bonds can be used at two levels:
One definition of money is that it is a technology communities use to trade debts. The technology of money, like many other technologies, is growing increasingly open. Bitcoin technology is a case in point. Bitcoin technology’s essential innovation was a public blockchain of transactions, eliminating the need for a central bank. One explanation for Bitocin is to imagine it as a new virtual element. We know what the supply is. We know where most of it is. However, it is not money. It is a virtual element; but only a community can decide whether to use this virtual element for trade.
There are now over 40 alternative cryptocurrencies, AltCoins, experimenting with different combinations of features based around the idea of a blockchain. A quick insanity check - the five-year-old Bitcoin has a market capitalisation of $8.5 billion today, about the same market cap as the London Stock Exchange Group, whose heritage dates back 200 years.
There is even intergalactic potential. Last autumn Travelex announced Quids, Quasi Universal Intergalactic Denominations, a space currency. Bitcoin technology has other applications, for example secure transfer of title or voting, perhaps even share voting. Bitcoin itself may well fail, but Bitcoin technology has a long way to go and some AltCoins are likely to succeed.
We would propose that the New Garden City bring out a local currency emulating the Swiss WIR, but using modern AltCoin technology. On what might the Swiss WIR mean for the UK, Z/Yen published a report titled "Capacity, Trade & Credit: Emerging Architectures for Commerce and Money" with the City of London Corporation in December 2011.
The full report had numerous recommendations about using new currencies and exchanges to increase economic growth. All that said, perhaps the most important thought was trying to introduce a UK WIR. To the Swiss, the WIR is a clear success comprising a quarter of Swiss firms and about £3.2 billion of trading (an average trade is half CHF and half CHW).
Technically, all the Swiss did in 1934 was to push their regulator to regulate two currencies rather than one. They removed the ‘monopoly’ on money that most nations believe fiat currency requires. The national currency retains its supremacy based on the universality of tax and its monopoly on the use of force, but is now in competition for credit provision. The Swiss WIR system challenges the assumption that fiat tax scrip plus leveraged banking will magically equal the trust and credit of the national economy.
The GCC would be:
If the New Garden City will take GCC’s in payment or partial payment for LVT, then the currency would be ‘backed’ by genuinely valuable credit created by the New Garden City.
Taken as a whole, these three mechanisms would provide a unifying structure to the economics of the New Garden City. Being equitable across ‘space’, the LVT brings taxation to bear on the right areas, encourages sustainability and efficient use of land, and frees land over time for rethinking. Being equitable across ‘time’, policy performance bonds allow investors to hedge their risk of policy change, thus allowing them to commit fully to projects. Such bonds also ensure that there is good governance, as bad governance costs government directly. Finally, the New Garden City’s GCC provides a mechanism for local credit creation, combined with a sense of community favoring community businesses. Ultimately, the economic health of the community can be assessed by the confidence placed in the GCC.