Wednesday, 4 December 2013

Well that's not "free" then, is it?

From The Evening Standard:

There may be no such thing as a free lunch but free rent is on offer - providing you have an unique skill.

Increasing numbers of householders in the capital are offering free rooms in exchange for services, from Chinese lessons to carpentry.

A leading property website has seen the number of Londoners offering a free room almost double in the last two years.

As I've said, we live in a barter economy.

Clearly, using some common unit of currency, be it gold coins or numbers on computer screens to denominate one half of each transaction makes things much simpler and more efficient, which is why such systems have developed independently thousands of times in various forms all over the world from ancient antiquity onwards, but when it comes down to it, you swap goods and services for goods and services.

But paying your rent in the form of Chinese lessons or carpentry is still payment, and the accommodation is not free.

And strictly speaking, both halves of the transaction are taxable as well; if the Chinese tutor gives £500 of lessons in exchange for £500 of rent, the tutor is supposed to pay tax on the £500 non-cash income (the rent) and the landlord is supposed to pay tax on his £500 non-cash income (the lessons). There is also the quirk that if a man marries his housekeeper, the output/exchange remains the same but the tax base suddenly falls.

Which conveniently illustrates that income tax is double taxation and the only tax which is 'one-sided' is LVT, it is a user charge on the benefits which the owner/occupier gets from society in general and nothing else.


Kj said...

Ofcourse. We´re going to see more of this as the tariff war on people exchanging goods and services rages on. It´s true that it´s not free, but if there´s something people have very little of, liquidity, they will usually value their own time quite low if the alternative income is low to non-existent. Bartering services untaxed is about the only thing to get stuff done anymore.

Ben Jamin' said...

Which is why we need a clever accountant to tell us how we can get paid in houses instead of pounds sterling ;)

Yes, I know accommodation can be classified as a taxable benefit, but have HMRC really closed all the loop holes?

Mark Wadsworth said...

Kj, we both know why they do it, that's all fine. The point is that the rent is not "free".

Bj, yes, HMRC have closed all the legal loopholes, the problem is enforcing tax on non-cash (or non-bank) payments.

Apart from having LVT, of course, where you only need to know a small sample of actual cash payments to be able to work out the benefits received by everybody else who owns land in that area.

Ian Hills said...

A nice jibe at fiat currency, too...

Physiocrat said...

Where do local currencies fit into this scheme of things?

Kj said...

Physiocrat: I also wonder about this. An exchange in a local currency say a based around LETS, could be both viewed as a realised income and a debt/liability...? I know the tax-man has been after one of these things more than once, but haven´t read what the legal outcomes are.

Mark Wadsworth said...

IH, all currencies are fiat currencies to some extent, and if "private currencies" were so much better than government ones, people would keep inventing them.

The point is that "money" is not a thing in itself, it is a unit of measurement. Gold is not a unit of measurement, it is a rare, expensive and useful metal. There is no such thing as negative gold and gold does not come into existence merely by one person going into debt (which is how "money" is created).

It doesn't matter except for purposes of taxation and govt spending/redistribution where the currency has to be expressed as a unit of something.

The problem is perhaps money printing and inflation, but that is all down to Home-Owner-Ism - they actually love inflation because a) it it ex post justification of land speculation ("it's the only asset that beats inflation") and
b) it helps erode their debts and
c) it transfers wealth from savers to land owners.

Inflation doesn't "just happen", it is deliberate government policy.

With an LVT-based system, there'd be no inflation (and you are more likely to trigger mild price deflation).

Phys, it's all the same, it makes no difference whether you have a currency used by a few thousand people or by a billion. The minute that somebody is in debt to somebody else, you have created "money" and a fiat currency at that - it is only backed by the borrower's willingness and ability to pay.

Kj, there is no law against people using any unit of measurement they choose for their own transactions. The point about money as a unit of measurement is convenience - the more people use it, the easier transactions are.

Dinero said...

Strickly speeking we don't have fiat currency in the UK.

Fiat money would be something like the soviet era rouble.

We have currency created not by government decree , but by corperate, government and personal IOUs.

fiat latin - "let it be done"

Mark Wadsworth said...

Din: "We have currency created... by corperate, government and personal IOUs"

Correct, you could call it a "debt-backed" currency. Even land is only "worth" what somebody is prepared to borrow to pay for it etc.

Anonymous said...

Well the rent is "free", it's just not free.

Or maybe you're right and it's free, just not "free".

I can't get my head around it, but that might be because I'm "drunk".

Physiocrat said...

Land is only worth what someone is prepared to pay in rent, after deducting the costs of production and paying themselves an acceptable wage.

This rental value is related to the amount they could borrow in order to purchase the title to the land.

Often they borrow a lot more and then things go tits-up.

Dinero said...

the yearly interest paid will be equal to the rent paid and the "location price" will be dependant on the bank interest rate.

ie location price = the rent multiplied by the inverse of the interest rate.

Mark Wadsworth said...

Phys, I refer you to Din's comment.

Din, thanks, yet another concise definition, keep up the good work.

Dinero said...