A Rights-Based Basic Income
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 Restricted Bads
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.