"Capitalism is the only alternative
Margaret Thatcher once said: "there is no alternative",
meaning no alternative to her own brand of Capitalist economics.
Economics textbooks tend to give the same impression
they describe "free market" economics and little
else except an occasional comparison with Socialism/Communism.
This idea that economics is limited to an either/or
choice between Capitalism and Socialism seems taken
for granted by the media. But it's a false dichotomy.
Adam Smith and Karl Marx don't have a monopoly on economic
choice. Here are some alternatives generally not covered by
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 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
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
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
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 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.
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.
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
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 most cases, "digital economy"
propaganda is standard Reaganite or Thatcherite economics
disguised by techno-gibberish.
A few historical facts and figures will help to justify this
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.