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One of the central issues in the debate about Britain’s membership of the European Union is our ability to limit immigration and the EU’s insistence on ‘the four freedoms’, free movement of people, goods, services and capital.

There are two important points which seem to be generally overlooked in this debate:

  • Firstly, that there is a fundamental incoherence in the principle of the four freedoms;
  • Secondly, that free movement can be as big a problem within nations as it is between them.
Four Freedoms

There is a fundamental incoherence in the EU’s principle of the four freedoms because it ignores an essential difference between prohibiting member states from implementing rules which constrain natural behaviour and requiring them to implement rules which amplify or distort it. By insisting on free movement of capital, the EU is not merely protecting the natural freedom of its citizens it is actively distorting it.

Capital is wholly artificial; the form it takes, and the laws it obeys, are entirely a product of human society. As such, it is fundamentally different to people, goods and services, all of which have their own essential natures and intrinsic real-world constraints on movement.

But capital is also a driving force in the movement of goods and services, and it can also be a major factor in the movement of people. Therefore, the ability of capital to flow freely significantly increases movement of goods, services and people. In its current form it influences the types of movement in ways that are clearly pernicious.

When there is totally free movement of capital between regions which have significant disparities in wealth a vicious cycle can develop which can diminish both societies. Wealthy people in the richer country can take advantage of lower prices for land in the poorer country. This drives up the price of land, putting it out of the reach of many of the locals, and generally driving other prices up at the same time. It also often leads to an on-going flow of capital, in the form of rent, from the poorer country to the richer.

One response to that is for people from the poorer region to move temporarily to richer regions to take advantage of higher labour rates, sending some of what they earn back home (where it buys much more than it does in the country where they’re working). Since this increases the labour pool in the richer country, it drives down wages. This kind of migration is particularly pernicious in that the migrants often have no intention or desire to integrate with the culture they are visiting.

It’s important to bear in mind that the form capital currently takes is the result of centuries of haphazard development, and it has not yet arrived at a fully satisfactory form. Many people argue that its functions would be better served if it was substantially re-invented, because its present faults are the root of many ills.

In the absence of distortions caused by free movement of capital, movement of people between established societies would probably be primarily driven by cultural factors, and would probably enrich both countries.

Local Sovereignty’s position is, therefore, that it’s reasonable for EU member states to be barred from implementing rules which constrain the natural free movement of people, goods and services, but unreasonable for them to be barred from limiting movement which is the product of flaws within the broader societal framework.

If the EU dogmatically insisted on free movement as it currently operates, without answering the points made above, we would consider continued membership impossible. But, at the moment, we have no reason to believe that the EU would be so unreasonable; as far as we know, Britain has made no attempt to argue the issue at the level of fundamental principles and, until we do so, we are in no position to declare that the EU is unreformable.

In the long term, we think monetary reform could make restrictions on the other three freedoms unnecessary. For example, if capital flows between economic units were on a purchasing power basis, the kind of movement of people described above (taking advantage of differential labour rates) would cease to be a problem. But, until satisfactory monetary reforms can be implemented, we consider it perfectly reasonable for there to be restrictions on movement between countries which are significantly unequal economically.

Domestic free movement

It should be recognised, however, that free movement of capital is not just a problem between countries, it also causes problems within them: second-home ownership driving up property prices and local enterprises being driven out of business are two well-known manifestations.

Here too, though, the long-term solution depends on monetary reform – which require a deeper analysis of the nature of money. monetary reform

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