Cash, Not Control: A Global History of Basic Income

If you pay attention to public policy discussions, you know that people have proposed a Basic Income Guarantee or a Universal Basic Income as one option among many to deal with technological unemployment or the distributional consequences of new technologies like generative AI. You might not know that the idea of a Basic Income is nothing new, and it has a long and interesting history. That’s what the historian Anton Jäger and the historical sociologist Daniel Zamora explore in Welfare for Markets: A Global History of Basic Income.

In five chapters, bookended by an introduction and epilogue and followed by copious endnotes, the authors take us through the intellectual history of the idea. Instead of a massive welfare state that provides carefully chosen goods and services like housing, education, food, and so on at public expense, market-friendly Basic Income proponents suggest adjusting the starting points through taxes and cash transfers. Basic Income Guarantees make dollars, not bureaucrats, the first responders in crises.

They start by discussing unconditional cash grants throughout the COVID-19 pandemic and then explain how, contrary to accounts that trace Basic Income from Thomas More through Thomas Paine to today, the Basic Income idea is of more recent vintage. The real “Basic Income” idea emerged from early twentieth-century fiscal innovations, making tax-and-transfer schemes easier and cheaper to implement and administer than in-kind redistributions. They then explain how the idea developed through the middle of the twentieth century by engaging scholars like Juliet Rhys-Williams, Abba Lerner, and W.H. Hutt, before Milton Friedman proposed his Negative Income Tax. 

The idea developed further as postwar observers wrestled with the idea that automation meant the end of work, which in turn meant transferring purchasing power, not creating jobs, was the right way to fight technological unemployment and, in Chapter 4, the post-work world where automation meant leisure and cash meant autonomy. They then explore cash transfer programs in developing countries before concluding with thoughts on what twenty-first-century technopopulism means for the debate.

Welfare for Markets has much to recommend it. It explains how the idea developed parallel with economic ideas about socialism, noting that economists coalesced around Mises and Hayek’s idea that prices were necessary for rational, efficient production. Indeed, they quote James Meade, who described the price system as “among the greatest social inventions of mankind.” I think they could have built on the intellectual history of economics by exploring how the first and second fundamental theorems of welfare economics developed and influenced the debate. The First Fundamental Theorem of Welfare Economics explains that any competitive equilibrium is Pareto-efficient under perfect competition. The Second Fundamental Theorem of Welfare Economics says that any Pareto-efficient resource allocation can emerge as a competitive equilibrium if we adjust the starting points with lump-sum taxes and transfers.

It might look like economists disagree about a lot, and we do. But we agree, fundamentally, that markets are efficient under the right conditions and quibble mostly about whether the conditions are right. The left wing of the economics profession looks radically pro-market compared to the rest of academia, because it embraces markets (maybe not enthusiastically) and mostly seeks to solve social problems through taxes, subsidies, and transfers that either leave prices unmolested or align incorrect prices with marginal social benefits and social costs. 

Many proponents of the Basic Income argue that a simple tax-and-transfer scheme like the Negative Income Tax (the Earned Income Tax Credit in the US tax code) should replace the welfare state. Similarly, governments can make a case for financing schooling, but the case for governments owning and operating schools is much weaker. As I’ve told my students, I’d be very happy if I woke up tomorrow and a Negative Income Tax replaced the US welfare state. As Milton Friedman has explained, the benefit of a negative income tax is that it is easy to structure it so that it never penalizes work. In his 2011 book The Redistribution Recession, the economist Casey Mulligan explained how the tax code and existing welfare programs are a mess of contradictory and often pathological incentives where people get locked into the system by very high implicit marginal tax rates when earning income causes some benefits to expire.

The book’s global perspective is also refreshing, as it discusses the developing consensus among development economists, philanthropists, and practitioners that cash transfers are likely more effective than top-down, planning-centered approaches like Jeffrey Sachs’s Millennium Village project. As I’ve been working on the economist W.H. Hutt (whom they reference) for some time now, I was especially interested in and will refer back to their discussion of South Africa. Mises, Hutt, Hayek, and Adam Smith understood that markets are fundamentally conversational spaces where every dollar is a ballot and prices convey information rather than power. In principle, a Basic Income Guarantee can achieve distributional goals without sacrificing the mechanism that makes rational economic calculation possible.

Some progressives have interpreted proposals to replace the existing welfare state with a Basic Income Guarantee as some kind of neoliberal conspiracy. For people who don’t trust markets, “adjust the starting points and let markets rip” is less than attractive. There is a tension between low liberalism (give people money and let them decide for themselves) and high liberalism (give us money so that we can train people to want what they should want, and then provide them with the capabilities to get it via programs that provide it directly). Future work needs to address these tensions carefully.

On the subject of future work, the authors can improve the book’s next edition — or their future work — by engaging carefully with the economics literature on Basic Income Guarantees. The authors probably could have found a lot of work out there as they were doing the research and moving the book through the publication process. It was the subject of a 2015 symposium in the Independent Review, which included perspectives from philosophy, politics, and economics that the authors should consult. Several distinguished economists have papers in the 2021 Annual Review of Economics assessing Basic Income experiments and programs. There is a paper on Basic Incomes in the Journal of Economic Perspectives in 2018 that would have been useful. It would have been interesting to know, for example, how experiments with Basic Incomes have turned out. How responsive is the labor supply to a Basic Income Guarantee? Innovation? Education? And so on. The gap points to opportunities for scholars to build on this work and enrich our understanding by working harder to bring disciplines into conversation with each other.

Welfare for Markets is an interesting and relatively compact tour through the history of the idea of a Basic Income. It shows us how the idea developed and changed over the twentieth century and how it has evolved in the twenty-first century. It explores discussions about “the future of work” in the face of technological change that look like they are taken from recent issues of popular business magazines but were happening in the 1960s and before. While they do not evaluate philosophical arguments for or against a Basic Income, that’s not their task. They put the idea in its context of intellectual history since the Enlightenment. It is a valuable contribution on which scholars studying the history of economic ideas and the effectiveness of Basic Income Guarantees will certainly be able to build.