The original Economist who proposed Utopia Theory was Tahir Iqbal . At the heart of Utopia Theory is the rejuvenating drive to make economics into a subject that deals with and solves contemporary social problems. The problem utopia theory solves is poverty on a global scale. The key mechanism for this is asset price inflation. How much can this be increased to? This is the central question in utopia theory. An associated question is, to what extent can assets be distributed equally in a society? Taking historical examples, such as the UK experience of asset redistribution through the mechanism of buy-to-let mortgages and also council house purchases by owner occupiers allowed two different classes, the middle and working class respectively, to be greater owners of assets than would ordinarily be the case. What followed was a rise in asset prices which made many people richer in the balance sheet sense. The limit of asset prices is the main question we hereafter seek to answer. If they have no upper limit then it is theoretically possible that society could become a utopia, by means of everyone owning assets worth infinity. We consider house prices as the asset being used to solve poverty in section 1, outlining both a demand and supply centred approach to analysing the feasibility of poverty alleviation. We look at some drawbacks to the optimism of this work in section 2.

The limit to house price inflation

In the most optimistic version of utopia theory, the maximum prices of houses can rise is the amount that the market in house sales can handle. This is the volume of trade (the number of houses being sold) multiplied by the average price must be less than or equal to the total loans possible from capital markets of all kinds. This is not taking into account the dynamic of houses being traded and sold on a periodic basis. That is that this represents the entire trade and entire capital available. It does not take into account institutional considerations such as the amount of capital required by a bank to buy a house (1- the loan to valuation ) multiplied by the asset price. The other element of unrealism is that capital markets are a series of interconnected markets that sell to a number of different client bases, not just houses. The argument still holds albeit in a looser sense, in that house prices can go up to a maximum as set by the total funds available to housing investment. This amount is institutionally determined in banks and is to some extent influenced by government. The growth of asset markets has shown that prices do not seem to have an easily determined upper bound, particularly when there is a bubble.

Another version of utopia theory suggests that the total amount of assets in an economy can rise to an amount bounded by the profit stream from the loan of the assets. For example the rent from a house determines the highest the price can go, since the mortgage plus a normal profit must equal the rent achieved by the asset. Any more than this and asset owners will sell off their asset, reducing the price of the asset.

In the case of houses in the UK, wages affect the maximum house price, since this is an important aspect of demand.

An important drawback of asset price inflation is that much of the gain in assets is in those which are held by a few people, while a significant majority may have little or no assets. Were this the case, poverty alleviation would be difficult, if not impossible as we reject any notion of trickle down effects.

Drawbacks to Utopia theory

Utopia theory does not represent any particular argument or theory but rather an approach to solving the problem of poverty through economic thought. That said, it is a goal of the Utopia programme to find the myriad answers required to make society today into a utopia. Analysis is therefore used in an applied way that is at variance with much of mainstream economics, where problems are suggested in theory which are based on proving society is a utopia already (a Pareto Optimal allocation). This lack of dogmatism in the enquiry allows for a certain fluidity of debate and is an openly divulged debating strategy to avoid confrontation and the deeply sectarian divides of economic debates. Arguments against utopia theory are void since the answer is always, what would you do to make society into a utopia.

The central tenant of utopia theory is that asset markets can maintain themselves at high valuations which is not always borne out by casual empirical examination. Crashes do and have occurred, leading to protracted recessions or zero growth (Japan’s post bubble, UK post 1988). While this does show the primacy of asset prices in determining growth (assets are many times incomes in value), it means that the chances of stable growth is difficult to achieve over long periods. That said it is argued that the primary means for development into a developed country are asset price rises.