John Maynard Keynes on Universal Basic Income

1 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 ‘brave army of heretics’ whom orthodox economists tended to dismiss as cranks, as he explained in chapter 23 of the General Theory.^[8] The idea of breaking the dominance of wage labour through a guaranteed minimum income was particularly attractive to libertarian-minded artists and writers such as those Keynes associated with in the ‘Bloomsbury group’, many of whom drew on inherited wealth to support their creative work.^[9] Bertrand Russell, for instance, argued in Roads to Freedom (1918) that the state should provide all citizens with ‘a vagabond’s wage”, sufficient for existence but not for luxury’, which would allow men and women from all backgrounds – including ‘artists, writers of books, men devoted to abstract intellectual pursuits – in short, all those whom society despises while they are alive and honours when they are dead’ – to ‘pursu[e] their own work regardless of any public recognition of its utility’.^[10] 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 essay ‘Economic Possibilities for Our Grandchildren’, which suggested that mankind’s ‘struggle for subsistence’ could be solved within a century.^[11] 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.

At the same time, Keynes’ correspondence with George Wansbrough suggests that he was also interested in UBI 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’. Although Keynes believed that the wage cuts imposed by employers during the 1920s 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 Political Quarterly 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.^[12]

Some economists worried that a guaranteed minimum income would reduce work incentives, just as the ‘Speenhamland system’ of wage supplements had allegedly done in the early nineteenth century. Keynes’ 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’.^[13] Pigou argued that it was better for the state to subsidize 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.^[14] It was in this context that Milton Friedman began to develop his proposal for a negative income tax in the United States – an idea anticipated by the Dorset poet, mathematician, and craftsman A. Romney Green in a pair of articles that Keynes published in the Economic Journal.^[15]

2 From Utopia to Reality

As Peter Clarke has recently reminded us, Keynes was not merely an academic economist but also a man of action, who engaged throughout his career with the relationship between ‘truth’ and ‘expediency’ in politics.^[16] The letters to Wansbrough and Bonham Carter illustrate this nicely. Keynes’ enthusiasm for the principle of a basic income seems to have been sincere rather than merely polite, but it was heavily qualified by his sense of political realism. His attitude was no doubt influenced by the hostility of Labour and trade union leaders, many of whom saw family allowances – let alone UBI – as a threat to the dignity of male industrial workers and the wages they had won through the collective bargaining system. The Labour Party had examined and rejected a basic income scheme as early as 1921, 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’.^[17] Later in the war, Keynes also found himself shepherding Sir William Beveridge’s social security scheme through a sceptical Treasury.^[18] If civil servants balked at the financial implications of Beveridge’s plans, they were unlikely to accept the much larger cost of replacing social security benefits and tax allowances with a basic income.^[19]

Keynes’ sense of realism should give us pause before describing him as a UBI supporter. What we can say is that he stands in a long line of economists and political philosophers who have been attracted to the idea and used it as a teaching device. We can also say that his hope ‘that some day something of the kind will come to pass’ fits with what we know about his long-range economic optimism and his social values. More than eighty years on, basic income supporters are still trying to make the numbers work. When Keynes might have judged the moment ripe for UBI is a matter on which we can only speculate.