Property and its Enemies. Part III. How to Get a Free Lunch? Just Apply for It.
By Anthony de Jasay
See the Editor’s Introduction to this article.
One of the great theorems of economics tells us that, in a competitive equilibrium and with constant returns to scale, income distribution is a function of the marginal productivity of the factors of production and their ownership. Buyers pay and sellers get the marginal product, benefits equal contributions, and “there is no free lunch”. Much the same equality between factor rewards and products is explained by the exclusive nature of ownership. Exclusion bars access to resources except by the owners’ consent. Productive resources are exchanged at the values of their marginal products. Once again, there is no free lunch; everything is fully paid for. Moreover, since all exchanges are voluntary between willing buyer and willing seller, the distribution of benefits and contributions is just if the initial appropriation of resources was just. One might say, alternatively, that the question of justice cannot arise.
The first breach in this clean-cut system is taxation. Under it, contributions are exacted, rather than voluntarily exchanged against benefits. However, it could be, and always has been, argued that taxes buy public goods and services, defence, civil order, the protection of property and so forth, so that the contributor does get a benefit, even if not in proportion to his contribution, i.e. even if taxation is redistributive, which of course it cannot fail to be. Nevertheless, some element of exchange is present, albeit progressively weaker as the financing of the welfare state takes a larger share of tax revenues.
As was laid out in Part II, the “enemies of property” contend, by denying the reality of a pre-political and therefore pre-tax concept of property, that taxation is not really a breach of ownership, for the latter does not begin until after “society” has collected the taxes it chose to impose. While this truism correctly describes the accomplished facts, it does nothing to square them with justice.
The second breach, if it were eventually driven through, would be potentially far more radical. It would give an avowedly free lunch, a guaranteed basic income to every adult resident “with no strings attached, no questions asked.”1 The scheme would be introduced gradually to adjust to political realities, but the objective would be to give every adult an unconditional grant high enough to ensure subsistence. One of its most active promoters, Philippe Van Parijs, believes the scheme would resolve the dilemma between what he sees as the European economic “model”—high unemployment but little poverty—and the American one—little unemployment but much poverty. This is as it may be, and the present article will not pursue this point. Partisans of the proposal are unanimous that the main argument for it is not economic expediency, but justice.
The authors of the volume cited here all agree that the proposal is at least feasible, and the decline in statistically measurable GDP that it would probably cause would be bearable. The likely reduction in labour force participation might be offset by greater willingness to venture into self-employment if basic income were assured. Feasibility, then, is reduced to taxability. As Emma Rothschild puts it with engaging serenity, where the average income is higher than subsistence, the project can be realised.2 All it takes is to tax everyone at a rate that need not even reach 100 per cent of their earnings.
Even the most eminent contributors to the volume, such as Robert Solow who takes a fairly cautious view of the fiscal implications, show little doubt that the fiscal burden of a universal basic income for all at or near subsistence level would be peacefully borne by taxpayers and lead to no major perverse effects. Significantly, the very Milton Friedman who coined the dictum about there being no free lunch, has advocated a negative income tax, which is an unmistakeable free lunch and a first cousin of the universal basic income.3
While feasibility is merely the absence of a certain “argument against”, the “argument for” on everybody’s lips is freedom and justice. Van Parijs claims that society must ensure both formal and real freedom. Formal freedom implies the protection of property and personal liberty, while real freedom requires resources to let everyone use his or her formal freedom. Since resources cannot be redistributed without violating property “rights”, it is clear that Van Parijs must regard these as a “myth” and must have some new kind of “rights” in mind. Others, too, call into question the distribution of property and income that results from voluntary transactions. Edmund Phelps4 simply dismisses it as arbitrary, apparently on the ground that there is no such thing as a free market—a ground that is made to bear a weight that looks a little excessive.
However, by far the most ambitious argument for the justice of taking resources from existing owners and distributing them evenly, is by an appeal to the Giant Externality. It is a perennial that keeps cropping up in a variety of guises in the anti-property literature. In the Free Lunch collection of essays, Herbert Simon5 asserts that at least 90 per cent of the GDP of wealthy nations is due to this externality and less than 10 per cent is genuine factor product and factor reward. By rights, the 90 per cent should be “returned to the real owners” (p. 36). If all incomes were taxed at a flat 70 per cent rate, the original recipients would still be retaining three times their due, and there would be ample revenue both for basic income for all and ordinary government expenditure.
Simon is of course right that accumulated knowledge, sensible institutions and “social capital”, taken together, represent a large positive externality, though it is guesswork to put a number on the difference it makes to GDP. For all we know, Simon’s guess may be as good as anybody’s. However, in reasoning from this starting point, he seems twice to take a wrong turning.
First, the Giant Externality is not owed to “society”, but to countless specific actions of its members, each of whom acted the way he did for sufficient reasons. An externality is a passing or lasting consequence of a human action that benefits or harms third parties and that was not part of the actor’s reason(s) calling forth that action. Each individual who added his bit to the store of knowledge, who took up a trade and enhanced the division of labour, who fought against the curse of bad government that is the chief cause of poverty and waste, who taught her children a sense of duty and honour, helping to build “social capital”, was doing so for good reasons of his or her own, no matter whether egoistic or altruistic ones. His or her actions had already earned the reward that it took to call them forth. Praise may be given, but no second reward must be exacted. None is due; all accounts have been squared. The Giant Externality is the sum of a myriad of small externalities, by-products of a myriad of individual actions that have all been “paid for” in some way. It does enhance factor productivity, no doubt by a great deal. But it is not, for all that, itself a factor of production.
The second wrong turning is to use the Giant Externality as the reason for an egalitarian distribution of property Simon believes, perhaps rightly, that due to social networks and privileges, access to the Giant Externality is unequal. As a result, some factors are more productive and their owners get higher rewards than their due, and a high flat rate tax whose proceeds are handed back in equal grants to everyone, would correct this.
However, privileged access to positive externalities is merely a roundabout way of saying that opportunities are unequal. The standard argument for remedying or compensating for inequalities, for what it is worth, is a moral one. It stands or falls with the intrinsic badness of inequality. If this argument fails, the purported unequal access to externalities is not a wrong and needs no remedy. If it succeeds, some remedy is required, and it makes no odds at all whether or not the externality “belongs to society”. It is not its supposed “real ownership”, as Simon puts it, that justifies the redistributive measures. In fact, it is not property and belongs to nobody.
It is perhaps incongruous, after contending with the attacks on property of some very distinguished theorists, to take note of what Robert Goodin6 has to say. However, he offers tactical advice on using the “social” impulses of conservative political regimes for luring them step by step into granting universal basic income. Unwittingly, he tells us much about our times and about his own constituency. Conservative regimes are already prepared to pay people for socially useful activity, such as looking after other people’s children and infirm or elderly parents. The next step could be to pay them for looking after their own children and their own parents, cooking their meals and making their beds. The step after that, though Mr. Goodin stops short of it, is to pay them for making their own beds rather than leaving them unmade, a mess that one could deem socially undesirable. State salaries could be paid for more and more kinds of socially useful work. We are then well on our way to universal basic income. “All we then have to do”—concludes the streetwise Mr. Goodin—”is persuade people to apply for it” (p. 97). Just put in for it! This simple battle plan is probably as effective against property as sophisticated arguments showing why it is not legitimate.
Philippe Van Parijs, “A Basic Income For All,” in Joshua Cohen & Joel Rogers, eds., What Is Wrong With A Free Lunch? (Boston: Beacon Press, 2001), p.14.
Emma Rothschild, “Security And Laissez-Faire,” in Cohen & Rogers, op.cit.
Milton Friedman, Capitalism and Freedom (University of Chicago Press, 1962). See Chapter XII “The Alleviation of Poverty”, pp. 192-3 where Friedman advocates “an arrangement that recommends itself on purely mechanical grounds”.
Edmund Phelps, “Subsidize Wages,” in Cohen & Rogers, op.cit.
Herbert A. Simon, “UBI And The Flat Tax,” in Cohen & Rogers, op.cit.
Robert Goodin, “Something For Nothing,” in Cohn & Rogers, op.cit.
*Anthony de Jasay is an Anglo-Hungarian economist living in France. He is the author, a.o., of The State (Oxford, 1985), Social Contract, Free Ride (Oxford 1989) and Against Politics (London,1997). His latest book, Justice and Its Surroundings, was published by Liberty Fund in the summer of 2002.
The State is also available online on this website.
For more articles by Anthony de Jasay, see the Archive.