Article by Brian
Dean (originally published in The
Idler, Winter 2002)
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This article is also available
in Spanish: Guía
para el economista inconformista >
One
of Margaret Thatcher's favourite phrases
was "there is no alternative",
meaning no alternative to her own brand of free-market
economics. Economics textbooks tend to give
the same impression – they describe variations
on the "classical" market economic
model, and little else. Some of the more risqué
textbooks might devote a page or two to Marxism,
but that's the only alternative we're supposed
to consider. Economics is obviously meant to
be about capitalism versus socialism.
Since free-market capitalism and state socialism
are the only economic models that people know
about, it's quite easy to pass yourself off
as an expert in alternative economics. Bluffing
is effortless when 99.9% of people are ignorant
about the subject. And you're performing an
important public service, because people obviously
need to be told about the economic choices available.
There are a few things to watch out for before
you start bluffing at revolutionary ideas. Firstly,
beware of entering into what most people consider
"crackpot" territory. Economics is
supposed to be a serious subject, so don't give
people an opportunity to laugh. Secondly, avoid
ideas which might seem threatening – eg
the abolition of private property and free trade.
You want to convince and seduce, not scare people
away.
There are hundreds of economic ideas which
fall outside conventional capitalist and socialist
theories. The main difficulty is ploughing through
them all to find the best ones. As a starting
point for people new to the subject, I've selected
a handful of my own favourites, each of which
satisfies my criteria of being neither "crackpot"
nor scary.
Basic Income
A Basic Income is an income paid to all individuals,
without work requirement or means test. People
are free (but not obliged) to top it up with
income from other sources, eg self-employment
or jobs. Over the last two centuries this idea
has been independently proposed under a variety
of names – Citizen's Income, Universal
Benefit, State Bonus, Social Credit and National
Dividend – usually with the aim of remedying
social problems such as poverty and unemployment.
Several ways have been suggested to fund a
Basic Income. Nobel prize-winning economist
James Meade proposed a social dividend funded
from the return on publicly owned productive
assets. An existing example of a Basic Income
funded this way is Alaska's dividend scheme,
which is funded from royalties on Alaska's vast
oil fields. Some economists think that funding
should come from redistributive income taxation
or a tax on land. These ideas aren't new –
as far back as 1796, Thomas Paine favoured a
state-provided universal income to compensate
for the inequitable division of land, which
he saw as belonging to everyone. Of course,
technology has led to vast increases in national
wealth since Paine's era, making the idea of
a universal income seem all the more affordable.
The Basic Income concept makes good bait to
dangle in economic conversations. The uninitiated,
taking the bait, will argue that it would remove
the incentive to work, and nurture an idle underclass.
In fact, compared to the existing welfare system,
Basic Income provides a strong financial incentive
for creative and productive activity. With Basic
Income it's more financially rewarding to move
from unemployment into a job – because
you keep your Basic Income payments, whereas
you would lose your dole. Many common types
of work – eg low-paid casual, part-time
or self-employed work – increase your disposable
income under a Basic Income scheme, whereas
the income from such work is subtracted from
your dole under the current system. Many worthwhile
activities – adult education, voluntary
work, starting a business, etc – are penalised
or even criminalised under the current welfare
system, because they interfere with the condition
of "continuous availability for work."
Most wealth-creating activity begins modestly,
perhaps not generating enough for a person to
survive on at first. Basic Income nurtures such
activity, whereas the welfare system aborts
it.
Guaranteed Income
Guaranteed Income is sometimes confused with
Basic Income, but the important difference is
that it uses a means test. Every individual
is guaranteed a minimum income (set above the
poverty level) – if your income falls below
this level, you automatically get a top-up from
the government, but as your personal income
increases, the amount of top-up decreases. Guaranteed
Income, like Basic Income, is not conditional
upon work.
Several variations of Guaranteed Income have
been proposed, the most well known being Robert
Theobald's 1964 scheme for "Basic Economic
Security". Theobald was concerned about
the effect of technology and increasing automation
– he thought it was time to dissolve the
traditional link between income and work, since
most work would eventually be automated. Theobald's
proposal's were taken quite seriously by the
US administrations under Lyndon Johnson and
Richard Nixon. In fact, Nixon adopted Guaranteed
Income proposals as part of his "Family
Assistance Plan" bill (which was unfortunately
defeated in the Senate).
Negative Income Tax
One variation on Guaranteed Income is the Negative
Income Tax, which would provide government top-ups,
via the tax system, to those below a certain
income level. It should be pointed out to those
who see this as a "soft" leftist idea,
that Negative Income Tax was proposed by Milton
Friedman, whom many regard as being on the right
of the economic spectrum. Friedman's intention
was to create a system that costs less than
the current welfare system, but which avoids
the degrading nature of welfare.
Willingness to Work?
Many so-called "guaranteed minimum income"
schemes restrict entitlement, among the unemployed,
to those "willing to work" –
a condition similar to that of current welfare
systems. The Belgian political theorist Philippe
Van Parijs argues that when we assess willingness-to-work,
we should make the distinction between pointless,
dead-end jobs and useful, fulfilling or "stepping
stone" jobs – and that the best people
to make this distinction are the ones doing
the jobs. This is a different approach from
most conventional economists, who tend to see
all market-created jobs as "good"
and "worthwhile".
Employers can currently exploit the willingness-to-work
condition by providing what Van Parijs calls
"lousy jobs", which people are forced
to accept. On the other hand, how, without the
willingness-to-work condition, do you get people
to take jobs which are essentially decent but
low-paid? Under a Guaranteed Income scheme there
is little financial incentive to take low-paid
work, hence the condition. Van Parijs concludes
that the best solution would be a Basic Income
scheme with no willingness-to-work condition.
This would remove the coercion of taking "lousy"
jobs, but retain the incentive to take decent
low-paid jobs, since even the lowest paid jobs
significantly increase one's disposable income
under a Basic Income scheme.
Zero-interest Currency
A different type of non-coercive redistribution
of wealth comes from the old Individualist (as
opposed to Collectivist) Anarchist approach
of allowing free trade to drive down the cost
of "borrowing" money. This idea originated
with early anarchists such as Pierre-Joseph
Proudhon, Josiah Warren and Benjamin Tucker.
Free trade is supposed to drive down prices
through open competition, but according to Proudhon,
Warren and Tucker there is a fundamental flaw
in the existing system: a lack of competition
in the issuance of currency. The current legally
enforced money-issuing monopoly (eg the Bank
of England or the Federal Reserve) keeps interest
at an artificially high level – if free
competition was allowed in the creation and
distribution of alternative currencies, the
cost of credit could in theory fall to a rate
well below 1% (the cost of administering the
credit; true interest would be zero). As Benjamin
Tucker explains:
"If
a thousand men engaged in different lines of
business unite to form a bank of issue; and
if this bank of issue unites with other similar
banks for clearing purposes; and if said bank
lends its naturally well-known circulating credit…
do these loans of the bank's credit cost the
bank anything beyond the salaries of manager
and assistants, rent of building, expenditure
for paper and printing, losses by depreciation
of securities, and sundry incidentals? Do not
statisticians and economists agree that a discount
of one-half of one percent covers the expenses
referred to?"
When asked why business people would be motivated
to issue their own currency at a cost not exceeding
running expenses and incidental losses, Tucker
responds that in forming a network of such banks,
the business people would establish a collective
credit with circulating power, enabling them
to borrow money at less than one per cent –
which, he assures us, would be sufficient motivation.
The beauty of this idea for economic bluffers
is that it follows "free market" theory
to logical conclusions. It's a good argument
to use on "leave it to the market"
types. Get them to acknowledge that a currency
monopoly is at odds with free market philosophy,
then point out that a genuinely free
market, without any monopoly, is the economic
recipe for an Individualist Anarchist utopia.
With zero-interest credit, housing rent would
effectively disappear, because nobody would
give money away to landlords if purchasing was
cheaper. In fact, the anarchists claim that
zero-interest currency would eventually remove
all forms of usury, including "profit",
from economic transactions. Adam Smith's principle
of "labour being the true measure of price"
would thus come into effect through free competition
driving out all usurious components of price.
Workers would be fully compensated for their
work at last, and not a Marxist or Collectivist
in sight.
Alternative Currencies
Although it's normally illegal, there have
been hundreds of attempts to issue alternative
currencies. The British government suppressed
an attempt to distribute low-interest currency
in the American colonies (prior to the revolution)
and quashed a similar attempt by Scottish banks
– in order to preserve the monopoly of
the Bank of England. There are published records
of experiments in issuing private currencies
by the American Individualist Anarchists (eg
True Civilization by Josiah Warren and
Mutual Banking by William Greene), and
of course there are experiments that we don't
know about because of their secrecy. During
the 1930s depression in America, hundreds of
alternative local currencies were issued. The
government mostly turned a blind eye unless
currencies threatened to cross state lines,
in which case they put a stop to it. It will
be interesting to see how governments react
to alternative electronic currencies springing
up in cyberspace.
Stamp Scrip
In 1891 an Argentinian businessman and economist
named Silvio Gesell went one step further than
the Individualist Anarchists by proposing a
system of negative interest currency.
The most well-known form of this currency was
"stamp scrip", which required a stamp
to be affixed to the back of a money note each
month, to revalidate it.
Gesell believed that money is fine as a medium
of exchange, but that it tends to be used as
an instrument of power, capable of dominating
and distorting the market. For example, money
can be hoarded – temporarily withheld from
the market for speculative purposes – without
exposing its holder to losses. Real material
goods, on the other hand, can't be hoarded without
significant costs – either in the natural
deterioration of the goods, or in the cost of
storage.
In order to encourage the natural circulation
of wealth instead of speculative hoarding, Gesell
proposed "rusting bank notes" (a metaphor
for negative-interest money), to bring about
an "organic reform" of the monetary
system. With money behaving more like real material
wealth, the distortions in the system caused
by hoarding and other forms of usury would be
removed. This, he argued, would result in people
receiving the full proceeds of their own labour,
and would enable large sections of the population
to quit wage slavery and work in an autonomous
manner in private and co-operative enterprises.
A successful experiment with Gesell's theories
took place in the Austrian town of Wörgl
in 1932, during the depression. Wörgl effectively
ran out of money, so the mayor of the town printed
his own. The resulting currency, Wörgl
stamp scrip, was designed to automatically earn
negative interest. Each month its holders had
to pay a stamp fee of 1% of the value of the
note, so people spent the money as fast as possible.
This resulted in a huge increase in "real
wealth" – new houses, a new water
system, repaved streets, a new bridge, a ski
jump, etc. But when hundreds of other Austrian
towns came up with plans to copy the successful
Wörgl scheme, the central bank panicked
because of the threat to its monopoly, and it
soon became illegal to issue alternative currency
in Austria.
The Digital Economy
Apart from the possibility of alternative electronic
currencies, the "digital economy"
hasn't delivered much of revolutionary economic
impact. In fact, the bluffer's best response
to enthusiastic e-commerce disciples is a scathing
put-down. In most cases, their "digital
economy" propaganda is standard Reaganite
or Thatcherite economics disguised by techno-gibberish.
A few historical facts and figures will help
to justify the bluffer's cynicism towards the
digital economy. The first electronic money-trading
system was opened by Reuters in 1973, shortly
after the dismantling of the gold standard and
the Bretton Woods system (which regulated international
currencies). From earliest records up until
then, 90% of capital transactions had involved
the "real economy", ie trade and investment,
with only 10% being speculation. By 1995 a staggering
reversal had taken place – trade and investment
accounted for only 5% of capital transfers,
with 95% being short-term speculation.
Electronic trading networks have developed
a virtual economy in which most of the money
is made not through actual investment, but through
transacting in a sort of abstract wealth. For
example, huge profits can be made from a rumour
about an indirect effect of a future transaction
– but the future transaction doesn't necessarily
have to happen for the profits to be made. By
far the biggest profits come from currency speculation,
conjured up by supercomputers which transact
fast enough to exploit microfluctuations in
exchange rates.
Very little of this virtual-economy profiteering
produces anything of value in the sense of "real
wealth" – ie things of real value
to human lives. Short-term financial speculation
tends to create economies of high profit, low
investment, low growth and low wages –
in other words, it's detrimental to the lives
of most people. We have some strange notions
about the respectability of certain types of
income. When poor people receive modest welfare
payments without producing anything of value,
they're labelled as "spongers", but
when speculators bleed vast sums from the digital
economy, without producing anything of value,
we congratulate them on their skill.
The Tobin Tax
James Tobin, a Nobel laureate economist, foresaw
the detrimental effects of escalating currency
speculation during the 1970s. He proposed a
small tax on foreign currency transactions that
would put "sand in the wheels" of
international speculative finance, and thus
help to prevent instability in the global financial
system.
One big advantage of the Tobin Tax is the amount
of revenue it would generate. Currency speculators
trade over $1.8 trillion dollars each day across
borders. With the tax set at the very low proposed
rate of 0.1 to 0.25 percent, an estimated $100
– $300 billion per year would be generated,
depending on the formula used. Supporters of
the Tobin Tax say this revenue should be used
to tackle world social and environmental problems.
And it's interesting to note that the UN and
World Bank estimated in 1997 that the cost of
removing the worst forms of poverty and providing
basic environmental protection would be about
$225 billion per year.
Faking Economic Authority
Most alternative economic ideas – even
those as benign and sensible as the Tobin Tax
– have been floating around for decades
without being implemented. As a result, bluffers
are likely to be exposed to arguments such as:
"if it's such a great idea, why hasn't
it already happened?" It's important to
realise that the people making these objections
are never convinced by logical reasoning. Only
the endorsement by a conventional authority
will convince them. A good ploy, therefore,
is to quote foreign authorities – European
countries in particular seem more open to new
economic ideas. For example, the French, Belgian
and Canadian parliaments have already voted
in favour of a Tobin Tax; the Irish government
has seriously considered a Basic Income scheme,
etc. Or, you can quote intellectual authorities.
For example, Silvio Gesell's concept of negative-interest
money was supported by John Maynard Keynes,
who said: "I believe that the future will
learn more from the spirit of Gesell than from
that of Marx". With a little ingenuity
it's possible to link a Nobel economist to any
economic theory.
If you have no authorities to quote, you can
always base your argument on compassion. For
example, if a Guaranteed Income costs less than
welfare and humiliates recipients less than
welfare, who, other than a total sadist, would
not want to consider such a scheme? If zero-interest
currency provides higher wages for workers,
why not seriously think about it? If the Tobin
Tax can, quite literally, save millions of lives,
who would be so inhuman as to complain about
the minor impracticality of the idea?
And if that doesn't work, you should resort
to satire.
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