Masquerade! Paper Pound Notes on Parade

Few who are given to rational thought can look at the contemporary welfare state and not think "I can't believe it's not better". The perverse incentives, the poverty traps, the cruelty, the cost. There is plenty to bemoan.

There is also a political mood for change, driven by ballooning deficits and by the unforeseen consequences of 70 years of "National Assistance". What there is not is political will to examine the system honestly. Rather, there is a desire for a silver bullet, a simple solution to a complex problem.

At times like this, old solutions, discarded by previous wiser generations, tend to make a comeback. Today's favourite is called Basic Income Guarantee (BIG), or sometimes Universal Basic Income (UBI). This article aims to equip the reader to resist its superficial charms on the day, soon to appear, when it will be sold by every political huckster looking to buy votes with devalued promises.

First, a definition: a Guaranteed Basic Income is an unconditional regular cash payment to every citizen by the state. It satisfies all the basic needs of a modest lifestyle and removes from the individual the need to toil to survive. The payment is not means-tested and does not involve a requirement to look for, or be willing to undertake, work.

Details of schemes vary, and much vagueness surrounds the idea. A proposal to introduce a CHF 2,500 monthly basic income in Switzerland was recently voted down in a plebiscite.

Finland has, however, begun a trial for 2000 randomly chosen citizens who will receive a basic income of 560 euros per month, for two years. A small trial and not quite the full radical idea outlined in theory but it shows the direction of political travel. Olli Kangas, from government agency KELA, said:

It’s highly interesting to see how it makes people behave, Will this lead them to boldly experiment with different kinds of jobs? Or, as some critics claim, make them lazier with the knowledge of getting a basic income without doing anything?

Amongst another countries where this idea looks set to have a trial is Scotland. Glasgow and Fife, two Labour-administered areas notorious for long term poverty and deprivation, are to be the beneficiaries. The Royal College of Arts, which helped develop the proposal, put forward a figure of £3,692 ($4,559.60) per year for adults, considerably less than Finland’s trial and well short the promise of life-long freedom from want. As Fife Today reported, the scheme has been tried before:

Brazil implemented a basic income for its citizens in 2003, but it has been heavily criticised and its continuation is now under threat. The country’s welfare system has been accused of discouraging citizens from looking for work. Over 13 million Brazilian families receive funds from Bolsa Família, which has been described as “the largest programme of its kind in the world”. Brazil’s impoverished citizens receive money from the Bolsa Familia programme, which is a private foundation. The amount of money transferred depends on family size and monthly income, with the average family receiving just over £50 a month. Many Brazilians feel recipients are content to live on the programme’s wages and therefore stop looking for employment.

Notwithstanding the lack of a successful trial, it seems the idea is being embraced by the Labour Party, the SNP, the Green Party and the Liberal Democrats. Only the Conservative Party and UKIP have so far resisted its appeal, but the former only on grounds of cost, not principle. Let us recall that the Chicago School economic guru, Milton Friedman, so beloved of Thatcherites, advocated a negative income tax that was in most regards indistinguishable from the UBI. So we might soon find political unanimity on this subject.

So where, you may be asking, did this idea originate?

Well, it it is not new. Agrarian Justice is the title of a pamphlet written by Thomas Paine and published in 1797. In it, Paine advocated universal old-age and disability pensions, as well as a fixed sum to be paid to all citizens upon reaching maturity.

More modern moves in this direction owe some of their impetus to what John Maynard Keynes called the "economic underworld of Social Credit", the incoherent theories of Major C. H. Douglas. (Anyone wishing to learn more on this should read Salvation Through Inflation by Gary North).

The modern term was coined in 1966 by the futurist Robert Theobald in his book The Guaranteed Income: Next Step in Economic Evolution? So let us listen to what Mr Theobald said of his own idea's potential:


So first, and this is a recurring theme, the futurist Mr Theobald foresees technology—in this case, computers—rendering labour obsolete. After the huge post-1990 growth in personal and business computing, we now see that there is still much work to be done in society. You would think his dire prognostications would seem quaint and naive now—but no, is still broadcasting the very same idea half a century later. Always it, seems, utopia is just over the next hill.

Next, he says that the individual will be free to opt out of work all together, but that this will set a person free to solve our urgent problems. The guaranteed income would encourage risk taking and innovation. He fails to address the problem of whether, relieved from want and the urgent desire to improve ones personal situation, an individual would do anything at all.

While it is true that relieved from a menial task, some great genius may emerge, it is equally true that, relieved from the spur to address pressing personal needs, other great geniuses may lapse into idleness. It also ignores the reality of great endeavours; they need not only labour but land and capital resources.

How is land to be distributed for such speculative ventures? Who will build the factory? Who will labour to supply the raw materials? This is the economic vision of an author and dreamer; it bears no relation to the complex real economy.

Most bizarrely, Mr Theobald claims that centralised distribution of all funds necessary for human thriving "will have a major decentralising effect on society". He seems convinced that some communities will select, say, education as their focus, safe in the knowledge that their income comes from the state and that when they need to purchase food, construction materials, automobiles or sewage disposal services, other communities will be ready and willing to fulfil those more basic needs.

In short, the Basic Income Guarantee, like the Social Credit movement, is economically incoherent. It fails to recognise what the free market actually is: a means by which information is distributed so that we can all discover the most valuable ways to serve one another.

With that information flow disrupted, the disruption to the market would be profound. Some speak of a Basic Income death spiral where reduction in incentives to work reduces tax income, increases tax rates and so further disincentivises work, a cycle repeated until the economy collapses completely.

More likely, however, is a simple worsening of the current situation, where basic income is introduced but the level kept below the death spiral level. In such circumstances, we would see the problems of the welfare state worsen; the promises of UBI left forever unfulfilled and the advocates of the idea left saying, "If only UBI had been implemented in full, then the scheme would have worked; it was the half measures that caused its failure."

As well as the disruption to the free market which provides the riches so many politicians say are keen to redistribute, there is of course the issue of redistribution itself. The seizure of goods from individuals—the product of their labour—is an attack on property rights, an assault on liberty (self-ownership), and a contravention of one of the most foundational aspects of the law; 

Thou shalt not steal. (Exodus 20:15)

The idea that the state may use violence, or the threat of violence, to extract wealth from its citizens is so common now that few realise how lawless the whole process is. It is based not on voluntary exchange and express individual consent. Rather, it is based on the threat of violence towards the more unruly individuals and the compliance, sullen or otherwise, of the majority. It was for this reason that Murray Rothbard called the state a:

 gang of thieves writ large — the most immoral, grasping and unscrupulous individuals in any society.

Of course, in this regard, the basic income guarantee is no different from the welfare state as we know it. It is simply a less complicated and more destructive form. And that is its risk, for it represents another step on the road to serfdom. In his excellent 1969 book, Henry Hazlitt explained the problem, first quoting the Swedish economist Gustav Cassel:

The leadership of the State in economic affairs which advocates of Planned Economy want to establish is, as we have seen, necessarily connected with a bewildering mass of government interferences of a steadily cumulative nature. The arbitrariness, the mistakes and the inevitable contradictions of such policy will, as daily experience shows, only strengthen the demand for a more rational coordination of the different measures and, therefore, for unified leadership. For this reason, Planned Economies will always develop into Dictatorship.

And then Hazlitt recalls the words of Herbert Spencer:

[. . .] but also the necessity which arises for supplementing ineffective measures, and for dealing with the artificial evils continually caused. Failure does not destroy faith in the agencies employed, but merely suggests more stringent use of such agencies or wider ramifications of them.

And that is the real threat of the basic income, it seeks to cure chronic poisoning of a potentially healthy body by increasing the dose of the poison. The cure lies elsewhere—in the common law: no theft or harm, no fraud in contracts, in sound money, in honest banking and in small government. In this as in so many things, the fight is about truth and character as much as economics and policy.

Enter ye in at the strait gate: for wide is the gate, and broad is the way, that leadeth to destruction, and many there be which go in thereat: Because strait is the gate, and narrow is the way, which leadeth unto life, and few there be that find it. (Matt. 7:13-14)