John Maynard Keynes on universal basic income

by Peter Sloman

Keynes
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r2hox via Flickr

In the winter of 1939, as Neville Chamberlain’s government blundered its way through the Phoney War, John Maynard Keynes was preoccupied by the problem of wartime inflation. In a series of articles for The Times, later published as How to Pay for the War (1940), Keynes set out a plan for using taxes and compulsory savings to reduce consumer demand and so free up resources for the war effort. Though Keynes addressed his scheme to the Chancellor of the Exchequer, Sir John Simon, he also worked hard to bring the opposition Labour Party on side by showing how rationing, food subsidies, and family allowances could help protect the living standards of working-class families.

As the debate raged, Keynes’ former student George Wansbrough – a left-leaning banker who had stood as a Labour candidate in the 1935 election and later became a director of the Bank of England – wrote to him with a suggestion. Wansbrough argued that the campaign for family allowances, championed by the independent MP Eleanor Rathbone, did not go far enough: instead every family should receive ‘a basic income according to its makeup, calculated to cover its basic various needs’ and paid ‘on a scale equivalent to present unemployment insurance benefits’.1 Keynes’ response to Wansbrough’s basic income plan was warm and positive:

The general idea underlying the proposal in your letter of December 11th is, in my opinion, an important and excellent one. For a long time I have had something of the sort in mind and have indeed lectured on it; and, at the right moment, I do not see why it need be politically impossible. It should certainly have a place in any Utopian political programme.2

Four years later, when the Liberal matriarch Violet Bonham Carter sent him a more detailed basic income plan devised by Juliet Rhys-Williams, Keynes gave much the same reply. He thought the ‘idea of replacing the Income Tax allowances by positive payments’ was ‘very attractive’, and had tried to develop his own scheme ‘more than once’. He hoped that ‘some day something of the kind will come to pass’; in the meantime, the concept was ‘well worth exploring and publicising’.3

Both these letters have been open to researchers for many years – in Keynes’ papers at King’s College, Cambridge, and Bonham Carter’s papers at the Bodleian Library, Oxford – but so far as I can tell, Keynes’ interest in basic income has previously escaped scholarly attention. At a time when debates over automation and the gig economy are pushing UBI up the political agenda – as seen, most recently, in Andrew Yang’s improbable campaign for the Democratic presidential nomination – the great economist’s enthusiasm for the idea is striking. It would be too much to claim Keynes as a basic income supporter, since his sense of political reality pushed him towards a different set of solutions to poverty and unemployment in the context of the 1930s and 40s. As I show in my new book Transfer State, however, he was certainly a sympathiser, and it is not too difficult to imagine him throwing his formidable intellectual weight behind the case for basic income in our own time.

Keynes’ liberalism and basic income

In light of what we know about Keynes’ political outlook, it should not surprise us that he was sympathetic to UBI. Radical schemes for reorganizing income distribution circulated widely in inter-war Britain, perhaps most famously in Major C.H. Douglas’ ‘Social Credit’ movement, and Keynes developed a grudging respect for the ‘heretics’ whom his fellow economists dismissed as cranks, as he explained in chapter 23 of the General Theory. The idea of breaking the dominance of wage labour through a guaranteed minimum income was particularly attractive to the Bloomsbury intellectuals he spent much of his time with, many of whom relied on inherited wealth to support their artistic and literary work. Bertrand Russell, for instance, argued in Roads to Freedom (1918) that the state should provide all citizens with a ‘vagabond’s wage’: a ‘small income, sufficient for necessities’, which would allow men and women from all backgrounds to ‘pursu[e] their own work regardless of any public recognition of its utility’. Russell thought scientific innovation could allow ‘the whole community … [to] be kept in comfort by means of four hours’ work a day’, and Keynes echoed this techno-utopian vision in his famous 1930 essay ‘Economic Possibilities for Our Grandchildren’, which suggested that mankind’s ‘struggle for subsistence’ could be solved within a century. Basic income was a natural fit for a cultural milieu which celebrated individual freedom and creativity and welcomed the prospect of managing the transition to an age of leisure.

Alongside the philosophical appeal of UBI, Keynes’ correspondence with George Wansbrough suggests that he was also interested in the idea for economic reasons. As Wansbrough pointed out, basic income offered a way of removing the upward pressure on labour costs which was created by trade unions’ demands for a ‘family wage’, and so easing – or perhaps even abolishing – the ‘unemployment problem’ which had plagued British society since the early 1920s. Although Keynes believed that the wage cuts imposed by employers after the First World War had been self-defeating, he shared the widespread neoclassical belief that pushing wages above their ‘equilibrium’ level was liable to damage industrial competitiveness and destroy jobs. ‘If we want to better the condition of the working class’, he argued in 1930,

there are plenty of alternative ways of doing it, and plenty of ways of assigning to them a larger proportion of the total national income than they have enjoyed in the past otherwise than by increasing their wages.

So long as Britain had an open capitalist economy, Keynes felt that ‘the Liberal solution’ to poverty – using taxes to pay for ‘useful expenditure’ on health and education, housing subsidies, and social benefits – would be more effective than ‘the Trade Union solution’ of higher wages.

Some inter-war economists worried that a guaranteed minimum income would reduce work incentives, just as the ‘Speenhamland system’ of wage supplements was believed to have done in the early nineteenth century. Keynes’ Cambridge colleague Arthur Pigou, for instance, warned in The Economics of Welfare (1920) that ‘a universal gift to everybody of a sum deemed sufficient to furnish by itself the means of subsistence’ would ‘cause the recipient to contract the amount of work that he does, and therewith, his contribution to the national dividend’. Pigou argued that it was better for the state to subsidise living standards through benefits in kind, such as education, school meals, and children’s health care, which workers might not otherwise have purchased. By the Second World War, however, there were signs that attitudes were changing. The socialist calculation debate of the 1930s focussed economists’ attention on the allocative inefficiency of central planning, and prompted growing interest in cash transfers as a way of redistributing purchasing power in the market. Cash transfers also promised to give citizens greater personal freedom, as Milton Friedman pointed out when he presented his Negative Income Tax scheme to the first meeting of the Mont Pèlerin Society in 1947. Younger Keynesian economists such as James Meade and Roy Harrod were attracted to UBI partly for this reason.

From utopia to reality

Although Keynes warmly supported basic income in principle, his practical interest in the idea was heavily qualified by his sense of political realism. He told Wansbrough that he thought it ‘unthinkable’ that UBI could be introduced in wartime, and feared it would be ‘the waste of a good idea to bring it on to the tapis in such conditions’. Keynes’ attitude was almost certainly influenced by the hostility of Labour and trade union leaders, many of whom saw in-work benefits as a threat to the dignity of male industrial workers and the ‘family wages’ they had won through the collective bargaining system. The Labour Party had examined a basic income scheme as early as 1921 and had rejected it unequivocally, declaring that it was ‘more in accord with our principles to establish high wages and high unemployment benefit, than to offer merely the means to live’.4 Later in the Second World War, Keynes also found himself shepherding Sir William Beveridge’s social security scheme past a sceptical Treasury. If civil servants balked at the £700 million gross cost of Beveridge’s plans for unemployment benefit, pensions, and family allowances, they were unlikely to accept the £2.3 billion cost of introducing a UBI in place of existing benefits and tax allowances.

Even so, Keynes’ instinctive enthusiasm for UBI has significant implications for how we understand the post-war settlement. The labour-market model that prevailed in Britain from the 1940s to the 1970s is often seen as Keynes and Beveridge’s achievement, with ‘Keynesian’ demand management maintaining full employment for male industrial workers and contributory National Insurance tiding them through ‘interruptions of earnings’. Many of the feminists, environmentalists, and claimants’ activists who launched the modern basic income movement in the 1970s and 1980s associated ‘Keynesianism’ with this labourist approach to work and welfare, and so viewed it with suspicion.5 As Robert Skidelsky and Richard Toye have shown, however, Keynes’ own political values were rather more complex. He saw technocratic economic management as a means to an end: a way of lifting the British economy out of the slump and achieving the kind of sustained growth that would open up space for more radical economic and social possibilities.

From today’s standpoint, of course, Keynes’ vision of universal abundance by 2030 looks remarkably over-optimistic. The climate crisis has revealed the disastrous effects of single-minded growthmanship, and even within the UK, the rise in living standards has stalled over the last decade in the face of stagnant productivity and inflated housing costs. At the same time, the legacy of deindustrialisation and the rise of precarious work means that the need to support low-paid workers and their families is greater than ever. The question is not whether the UK’s post-industrial economic model requires an extensive system of cash benefits for working-age households, but what form it should take. The prevailing model of means-tested, conditional support backed up by benefit sanctions which has developed over the last 30 years – and is now reaching its apogee in Universal Credit – hardly fits with Keynes’ libertarian ethos. If the great man were alive today, he would no doubt be struck by the growing interest in UBI across the British left, including among Labour, Green, and Scottish National Party activists and some rank-and-file trade unionists. Indeed, John McDonnell has set out plans to run basic income pilots in Liverpool, Sheffield, and the Midlands if Labour wins the next election. Eighty years after Wansbrough suggested a basic income scheme to Keynes, it seems fitting that the political debate has come full circle. Whether this is the right moment to bring UBI ‘on to the tapis’ of British politics remains to be seen.

Transfer State: The Idea of a Guaranteed Income and the Politics of Redistribution in Modern Britain is published by Oxford University Press on 24 October.

Notes

1 King’s College, Cambridge, John Maynard Keynes papers, HP/1/87-9, George Wansbrough to John Maynard Keynes, 11 Dec. 1939.

2 King’s College, Cambridge, John Maynard Keynes papers, HP/1/90-2, John Maynard Keynes to George Wansbrough, 14 Dec. 1939 (copy).

3 Bodleian Library, Oxford, MS. Bonham Carter 183/24, John Maynard Keynes to Violet Bonham Carter, 20 Dec. 1943.

4 Labour Party, Report of the Twenty-First Annual Conference. Brighton, 1921 (1921), pp. 60–2.

5 See, for instance, Bill Jordan in New Society, 23 Sept. 1982, pp. 496-7.

 

About the author

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Peter Sloman is Senior Lecturer in British Politics at the University of Cambridge and a fellow of Churchill College. He has written extensively on twentieth-century British history and public policy, and his book Transfer State will be published by Oxford University Press in autumn 2019.

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