When the topic of basic income arises, people often ask me: “Why should we pay people to do nothing?” We generally think that hard word generates income, and that workers rightfully own that income. The idea of taxing hardworking people to pay those who (might) do nothing seems unjust. Should workers slave for money that mostly gets confiscated and given to others?
Yet not all income is paid to labour. A portion of income is used to rent assets of value. An owner of valuable assets can receive rent from others who wish to use them. This will provide him with an income for little to no work – possibly indefinitely. Some of the value of rentable assets was produced by labour, however a portion, perhaps a third to a half, was not.
I propose (as Henry George once did) that only the value created by labour can rightfully be privately owned. The only assets of value that can rightfully be purchased are assets created by labour, and if labour is only responsible for a portion of an asset’s value, then only that portion which labour produced should be owned privately.
There is no reason why one person should have a greater claim than another to value that is not produced by labour and, therefore, the rental income proceeding from the use of all natural value, by right, should be distributed evenly throughout society. The only way to own something is to produce it or purchase it from the rightful owner. This requires a voluntary exchange of ownership extending back to the original producers of the item of value. The purchaser of private ownership rights to natural value is like a buyer of stolen bicycles – as all private entitlements to natural value were originally stolen from the commons.
This article explores the revenues that a basic income based on equal rights, could generate. An income based on the principle that all people have:
- An equal right to the unimproved value of land
- An equal right to newly printed money
- An equal right to inheritance
- An equal right to benefit from bads whose quantity must be limited
The Portion of Land Value Not Produced By The Owner
Anything for which the demand at zero price exceeds the supply has monetary value. For some of these scarce, yet desirable, items (such as a piece of jewellery) the source of value was the labour of a craftsman, in which case the value rightfully belongs to its creator. Yet in other cases, at least a portion of the value is naturally occurring (a lakeside view, for example). Usually, human labour must mix with natural value to produce the final item. However, some natural resources require less effort to extract value from than others. Consider two coal resources: one far below the surface branching into narrow seams, another deposited on the surface, extractable with open cast mining. The value of coal from both mines is equal, yet one requires far more labour to extract than the other. This will make the mineral rights of the easily mineable deposit more expensive than the rights for the deposit that requires more capital and labour to extract coal from. But when one mining company out bids the others and pays the higher sum for the right to mine these easily accessible deposits, to whom should the money be paid? Who was responsible for that coal deposit being closer to the surface? Who deserves to be paid for this service? No one! It is simply a fluke of nature. And if no one deserves the cash proceeds from selling the rights to this resource, then everyone is equally entitled to these proceeds.
Beyond that, there is value that arises from proximity to other people. It is valuable to live close to shops, restaurants, discos and workplaces from which to earn a living. Yet the land owner creates only a tiny portion of this value. If most people on a street paints their house, the location value of the street will rise even for those who don’t. If a shop or railway station opens up, nearby house prices will go up even if their inhabitants did not build the railway or work in the shop.
We can thus see that, while much of a location’s value does arise from human activity, the rental proceeds from location value are not paid to the creators of that value. Since it is impossible to identify who is responsible for each pound of increased location value, it is better to tax the rental value of location and distribute a per head payment to everyone.
How do we assess what portion of land value arises from its unimproved location value and what portion arises from improvements which the owner has made? The value of the improvements is the cost of producing the improvements. If a house in London costs £150,000 to build and sells for £750,000, then it’s unimproved land value is £600,000. The cash value of the yearly benefit that proceeds from the exclusive use of a location is the location rent (the site rent). The appropriate level to set land value tax (a sum payable to the government for the exclusive use of a location) in a neighbourhood, is therefore whatever level reduces the prices of houses traded in an area to the cost of producing all the improvements present at that location. Mark Wadsworth estimates that a tax on the full site rent of residential property in the U.K. would bring in around £200 billion. Existing business rates offer a conservative ballpark estimate for what a tax on the unimproved value of commercial land could raise – around £30 billion.
Natural resources and farm land would not significantly change these figures.
So an equal right to the rental proceeds arising from the unimproved value of land in the U.K. would split £230 billion per year among 50 million adults and yield a yearly basic income of £4,600 per person.
An Equal Right to Newly-Printed Money
Any civilization that permits usury must continually create new money to remain stable. The current way that central and private banks create and distribute new money is highly unjust. So who should receive the newly printed money? Newly created money is not produced by labour, we certainly don’t reward private individuals who labour to create money! Forgery, the production of money by private individuals, is a criminal offence. Money is an – albeit useful – artificial monopoly imposed by legal fiat. Because it is produced by legal fiat, rather than labour, all people have an equal claim to the value of newly printed money. In a previous article, I discussed the precise financial policy reforms required to stabilize our system. Suffice to say they involve paying £1,840 to every adult, every year.
An Equal Right To Inheritance
Imagine a think-tank asked you to summit a design proposal for an equitable welfare system that addresses poverty to a report they were writing. Imagine you proposed a system where the welfare each recipient received was proportional to the net worth of their parents at their time of death. The response of the editor would probably be: “That’s the dumbest, most arbitrary, welfare system I’ve ever heard! Come back when you have something better!”
Inheritance is welfare. It’s unearned wealth some people receive in exchange for no work.
Some people accumulate a great deal of wealth over the course of their lives, which doesn’t go away when they die. So what to do with that value? Since no living person produced it, no living person has earned it. As such, everyone should have an equal claim to the wealth left behind by the dead.
So how much money would an equal right to inheritance bring in?
Let’s neglect land (whose value would already be taxed away) and just include financial assets. The HMRC estimates the total value of financial assets in the UK to be £1.6 trillion. If we take the gap between generations to be 33 years, as Richard Murphy does, this would yield a yearly revenue of £53 billion to be redistributed. Let’s assume, for the sake of being conservative that half of this is avoided or evaded. This would leave ~£25 billion a year, or £500 per person per year.
An Equal Right To Bads Whose Production Is Restricted
It is impossible to quantify with any accuracy, how much income this would bring in as the extent to which bads are restricted, and how they are restricted, is a political one. A slight modification of David Fleming’s proposal of Tradeable Energy Quotas ( TEQs ) would distribute rights, to purchase CO2 emitting fossil fuels, equally throughout the population. Every time you buy coal in the shop, you would have to surrender a portion of your quota. Companies would not be issued with any carbon ration but would have to purchase it from private individuals who could sell their carbon rations on the market to companies instead of burning it.
An alternative would be to charge a fixed price per unit bad emitted. There is a case for spending this price on clean-up costs rather than giving it to the population in general.
Beyond that, companies must often be approved for a license to engage in potentially harmful activity. The quantity of this activity could be reduced by increasing the cost of the license (whether selling liquor or gambling). The money raised should be distributed evenly throughout the population.
Conservatively, I will add £500 per person per year as the proceeds of the redistribution of fees, duties, rations, licenses, etc., etc.
Getting Real About Basic Income
Adding it all together, a rights-based basic income, which makes no claim on the proceeds of other people’s productive labour, would amount to about £7,440 per person. That this is far below the average wage should not be surprising for, as Piketty has mentioned, capital accounts for 30% of income (and some of that capital is justly earned), while wages account for 70% of income.
We need to be realistic about basic income. The purpose of basic income is not to enable people to live comfortably without working, rather it is to enable people to live without working in the labour market. If instead of using basic income as something to buy meals and pay rent, you think of it as money that enables you to purchase building materials, gardening and maintenance tools, and fertilizer to which you apply your labour to set up and run a homestead, then an unconditional payment of £7,440 a year could go a long way to enabling a sufficiently industrious person to establish quite a high quality of life for himself without selling his labour to others.
And since no customers or employers are required to give people permission to provide for their own needs, anyone could access this lifestyle. While not everyone would choose it, a universally accessible option of self-provision would greatly strengthen the negotiating position of workers with their employers and increase both wages and employment.
So a modest basic income could go a long way.
My article Basic Income, Self-Provision and Full Employment discussed the higher credit value of basic income as well as it effect on wages and employment in greater detail.
John
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Thanks John have saved for next big thinking moment – looks very interesting
David
thanks John. See my article here on a natural rights based property theory http://natrights.blogspot.com which has much in common with your ideas.
Very interesting article John.
You ask if everyone is entitled to the same share of unearned income. I suspect the answer to that is no, because as well as unearned income there is a lot of unrewarded labour. That might include obvious community things like being a school governor, a charity trustee, or a club secretary, but it might also include less tangible things, like people who work hard on looking after their gardens and make an area a nicer place to live in for others as well, or whose lives are an inspiring example to others. Of course some people might be able to do more unrewarded labour because they have more unearned income and so more opportunity to give back to society in that way, but still you could argue that some people are more virtuous and perhaps more deserving than others of a share of unearned income.
I wonder if anyone has thought about a system where a share of each person’s basic income cannot be spent by them directly, but only acquires value when it is given to someone or something else. Perhaps people could choose to donate this share to a charity whose work they value, or to people in their community who are active citizens. I guess considerable thought would have to be given to how to prevent abuse of this system, otherwise unscrupulous people could just convert their share of such income to “real” money just by agreeing to exchange their shares with each other. But I think doing something like this might make it more worthwhile for people to engage in virtuous behaviour, and so it would tend to improve the collective well-being of society.
Good point Alun.
In principle, some virtuous people might well deserve more unearned income than others…but would such a payment undermine their virtue?
Would virtuous behaviour remain virtuous if it was directly financially rewarded?
We already pay salaries to people for doing socially useful things. Policemen, teachers, surgeons, social workers, etc., etc., If a large portion of tax income was given to virtuous volunteers, would they still be volunteers or would they become public sector employees?
Furthermore, the nature of virtue is surely to help others. Yet if we paid the virtuous more money than the unvirtuous, then the virtuous would impose an opportunity cost on the unvirtuous by reducing the income they received and that would put quite a lot of pressure (and maybe stress) on the virtuous to ensure their virtuous activities (whose benefit is often unquantifiable) justified their salaries.
Frankly, I think a big reason why people do voluntary work is because, when you’re willing to work for nothing, it’s a lot easier to get a role in an organization, this means that volunteers have a much greater choice, in terms of how they help the community, compared to people who get paid professional salaries who must demonstrate a high level of skill in a relevant area to justify their salary. This means that people receiving salaries can end up tight-cast in a particular profession which they find very hard to escape. Volunteering tends to add variety to the work you do and expand your experience.
The problem then is, if you paid more to people who contributed more than others, would the organization that recruits for volunteers become more choosy? Would volunteers that receive financial rewards, be forced to work in roles in which their skills were strong? Would bureaucracy and barriers to entry permeate into the voluntary sector just like the paid sector?
I agree that virtuous people deserve more than unvirtuous people.
But I also think that the relinquishment of part of what you deserve is in some way inseparable from virtue itself.
It seems simpler just to pay everyone the same amount. There isn’t much correlation between wages received and benefit provided to society overall, even in the private sector. I suspect this is because doing so is hellishly difficult.
Thanks for replying John. You make some good points about the benefits of volunteering, which certainly chime with my own experience and motivation to some extent. It’s also very relevant that as well as unrewarded labour there is a lot of under rewarded labour too. Your point about how bureaucracy and barriers to entry might permeate are also interesting, though I fear this is already happening in any case due to the reliance on volunteers to mitigate some of the effects of austerity. Organisations turn to using volunteers instead of paid workers but will manage them much more tightly than would have been the case in the past, though sometimes for the best of reasons (e.g. safeguarding, health and safety).
I’m not suggesting that the state makes the decision about to whom to give additional basic income, except that it would set the percentage of income that each person would have to give, so I don’t think people would become public sector workers. The system would be a bit like a sort of giant version of super-market charity tokens. Instead of having to choose between three local good causes you’d be able to give the income to whomever or whatever you wanted on the basis of who you think “deserves” a little extra income.
Given that we’re already able to spend most of our money where we want (other than taxes), but that it doesn’t seem to end up in the right places it’s clear what I’m suggesting might not work too well either, and some constraints might be needed to get it to work better. For example, it would probably be necessary to exclude some individuals and organisations from being able to receive such income, presumably based on what they’re already earning through other means.
As you say, this might all be hellishly difficult, but I think it’s worth a shot, and if it helped to ensure that resources were more beneficially distributed, then perhaps some lessons could be learned that could be applied to the rest of the money supply.
Thank you Alun for posting on my website!
I suspect a supermarket token system could be a Godsend to junkies who would go around pestering members of the public to give them some tokens while inventing all sorts of sob stories to persuade them to – much as people beg for money today. Members of the public would probably give more tokens to junkies than money as they have to spend the tokens one way or the other.
Alternatively there could be all sorts of “If you vote me to be worthy of receiving a token then I’ll vote for you.”
Having said that, since there are infinitely many ways to regulate it, I cannot rule out that there may be some way to do it properly.
The Seasteading Institute is an organization that wish to start new nations in order to test different regulatory systems, so that might be a way of testing whether it would be possible to get your proposed system to work on a small scale before rolling it out.
https://www.seasteading.org/