Thursday, 30 October 2014 21:35

The (Big!) Difference Between a 'Basic Income' and the National Dividend

Written by M. Oliver Heydorn
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It seems that more and more people in various countries are starting to take proposals for the introduction of a basic income quite seriously.

According to the bien network: "A basic income is an income paid by a political community to all its members on an individual basis, without means test or work requirement." Cf. http://www.basicincome.org/bien/aboutbasicincome.html#faq

The Social Credit proposal of a National Dividend can also be defined as '... an income paid by a political community to all its members on an individual basis, without means test or work requirement.'

However, the National Dividend must not be confused with a basic income because there are hugely significant differences between them.

 

In what follows, I will only focus on what I take to be the three key differences:

 

1) The Structural Nature of the Proposed Benefit

Whereas the basic income is typically conceived as a fixed amount that would be granted unconditionally and would be enough for a person to survive on, the National Dividend would vary depending on the performance of the economy. In other words, the dividend is indexed to productivity. No productivity, no dividend. The greater society's productivity, the greater the dividend. It is expected that, in a highly industrialized country, the dividend (in conjunction with compensated prices and massively reduced taxation) should be at least sufficient to meet each person's basic expenses and that its relative purchasing power vis-à-vis salaries and wages should also be growing as machines replace human labour in the productive process.

 

2) The Social Purpose of the Proposed Benefit

Whereas the basic income is normally allied to a policy of full employment (i.e., the amount given to citizens must not be so great as to serve as a disincentive to seeking work in the formal economy), the National Dividend is allied to a policy of increasing leisure. Social Credit is opposed to full employment as a fixed objective. People should only be required to labour in the formal economy insofar as their work is actually needed in the provision of those specific goods and services that they would independently select (i.e., if their choices were not conditioned by the artificial scarcity of money that is an inherent characteristic of the present financial system). Machines of various types make it possible for a technologically advanced society to produce enough to meet everyone's needs without calling on the full capacity of the labour force. Any policy that goes beyond this and requires people to devote more time to production than the physical facts of the economy warrant is a policy of servility (it is a form of enslavement) and is also grossly inefficient and hence socially and environmentally wasteful.

 

3) The Financing of the Proposed Benefit

Whereas the basic income is usually conceived as being funded within the financial constraints of existing economic orthodoxy, i.e., through redistributive taxation, or an increase in public indebtedness, or the redistribution of profits from publicly owned corporations, etc., the National Dividend is financed through the debt-free creation of new credit that would be issued by a National Credit Office. The creation of this additional money by an organ of the state is justified by the fact that there is a chronic and underlying gap between the prices of goods on sale to the consuming public and the money that was made available in the course of their production. Principally because of the way in which real capital (machines and equipment) are financed and the way in which their costs are then accounted for, the existing financial system generates consumer prices at a faster rate than it distributes consumer incomes. Social Credit proposes to fill this gap via the creation of a sufficient volume of debt-free money so that the "surplus production", i.e., the production for which no consumer income is automatically being distributed, can be bought without relying, as we currently do, on the contracting of new debts (whether on the part of governments, businesses, or consumers) for additional consumer purchasing power (amongst other palliatives). It is simply a matter of monetizing, if you will, the additional production. If a certain volume of goods and services alongside their prices exist, but the money to purchase them does not (because of an as-yet-largely-unrecognized accountancy error in the existing financial system), the credit needed to bring the monetary representation of reality into full alignment with reality should be summarily created and issued directly to consumers. The National Dividend would thereby contribute to the establishment of a real equilibrium in the economy's circular flow, i.e., an equilibrium that would be the fruit of a self-liquidating financial system, where consumer prices and consumer incomes would be held in an automatic balance. The basic income, by contrast, does nothing to achieve a self-liquidating financial system and may even, depending on how it is financed, contribute to the build-up of unrepayable debt.

 

Because of the stark contrast between the two proposals, Social Crediters should be very careful not to jump on the basic income bandwagon. Instead, we must convince basic income supporters that the National Dividend will deliver what they most desire (a certain measure of universal economic security), while simultaneously contributing, on the basis of our enormous physical economic potential, to a broader and most necessary reformatting of economic life in line with the true purpose of economic association: the delivery of those goods and services that people can use with profit to themselves ... with the least amount of trouble to everyone.

Furthermore, let us not be naïve. There are powerful vested interests who may choose to have the basic income introduced for their own reasons. Should the basic income fail (because it turns out to be too financially burdensome, or too many people stop working, etc.), it could be used to discredit real Social Credit: "They tried that and it did not work". Even if it can be sustained long-term under existing financial methods, the basic income will likely tend to mitigate the dissatisfaction of the populace with the existing system, thus further entrenching that system and perhaps making it impossible to dislodge (while at the same time possibly increasing the hold that the financial powers exercise over society via increases in taxation and/or public debts). From this perspective, the basic income may be seen as a few crumbs that the credit monopolists toss to the people in order to keep both them and radical, substantial change at bay. The proposal of a basic income would then qualify, like Keynesian economics before it, as an attempt to co-opt Social Credit by re-engineering one of Douglas' key remedial mechanisms in the service of the existing 'Monopoly of Credit'.

Last modified on Saturday, 10 February 2018 22:59

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11 comments

  • Comment Link Nicholas Tuesday, 14 August 2018 12:24 posted by Nicholas

    I find points with which I agree:

    Rentier income (income extracted from simply owning an asset, not from doing any productive) should be drastically reduced from its present level.

    The output gap in an economy should be filled by the currency-issuing government. The outgap gap is the gap between the current level of output and the level that could be achieved if all available resources were mobilised into productive use at the current productivity level. The government can implement measures that increase the productivity level (particularly by allocating funding to research and development, education and training, health care, high quality public infrastructure).

    The points with which I disagree are the proposal for a National Credit Office and the proposal for a National Dividend.

    National Credit Office. In substance, nearly every government in the world constitutes what social credit proponents call a "National Credit Office". Any government that issues its own currency, allows that currency to float in foreign exchange markets (ie doesn't maintain a fixed exchange rate to some other currency or commodity), and enforces tax obligations in its currency already performs the role of a "National Credit Office". Such a government can always buy any idle real resources that are for sale in its own currency. Such a government can always fill any output gaps. Such a government does not need to borrow its own currency (ie issue debt instruments such as Treasury bonds)).

    The National Dividend concept betrays a narrow understanding of the meaning of work. A society can widen its imagination of what a paid job can be. Many tasks that are currently defined by cultural norms as leisure, hobbies, or unpaid service can be converted into good quality paid jobs on demand. People gain immense psychosocial benefits from participating in paid work. Paid work is a major way in which people experience belonging, contribution, positive social interaction, mastery, skill development, self-esteem, respect from their children, and esteem from the community. We can and should widen the range of activities for which people get paid. A federally funded, locally administered Job Guarantee is the key policy means of achieving that goal.

    Privately owned banks are not necessarily bad as long as they are carefully regulated so that their only role is to implement high standards of underwriting (i.e. assessing the credit worthiness of borrowers). The advantage of allowing a role for private banks is that it is a mammoth task for a government to do all of the underwriting itself. We need a banking system that is highly responsive to emerging needs and opportunities. I agree that there should be a big role for public banks, but private banks can help to scale up the provision of underwriting services.

    I think the central bank should always implement a Zero Interest Rate Policy (ie the overnight interest rate in the interbank lending market should always be zero). Adjusting interest rates is a very weak mechanism for influencing output, employment, inflation, and social outcomes. Fiscal policy is far more powerful and effective than monetary policy. The last four decades of economic history demonstrate this conclusion very clearly.

  • Comment Link  Gary Reber Friday, 26 January 2018 21:49 posted by Gary Reber

    The major flaw in Dr. Heydorn's analysis is the same as for all Currency Principle economics: the implicit rejection of Say's Law of Markets and the consequent disconnect between production and money. In social credit (a spinoff from guild socialism, which was itself a spinoff of Fabian socialism, itself a development and expansion of the theories of Henry George), the government or some agency decides how much money to create. It is only by chance in such a circumstance that supply will equal demand, because with the separation of money creation from production, supply does not generate its own demand.

    In binary economics, money creation is tied directly to production, whether you are "producing" (forming) capital or consumer goods. Bills of exchange are issued to finance new capital formation or future production, while mortgages are issued to clear existing inventories. There is no place for government-emitted bills of credit, backed only by the government's faith and credit instead of existing and future private sector marketable goods and services; all government borrowing must come out of existing savings. In this way, assuming broad ownership of capital, supply will generate its own demand, and demand its own supply — a virtual impossibility under social credit, Keynesian economics, or any other Currency Principle arrangement.

  • Comment Link  MrVerAngry Friday, 26 January 2018 21:49 posted by MrVerAngry

    Nooo! No more government money creation purlease...

  • Comment Link Frank Friday, 26 January 2018 21:48 posted by Frank

    A national dividend without land reform -- even if it includes monetary reform -- is doomed to failure. The dividend must come from ground rents (and can include equal per-capita issuances of debt-free money supply as well).

  • Comment Link Dwayne Friday, 26 January 2018 21:47 posted by Dwayne

    I like the dividend portion but I don't like the means of producing the funds.
    The feed back response loop from the economy has a largely variable political or bureaucratic step where the amount of credit produced is chosen. This may work out fine so long as steady hands are at the wheel. I could see a similar problem the the UK labor party voting themselves more raises.

    I think this is much harder but still possible in a system where funding is derived from property taxes. Particularly land value or ground rent taxes and other similar pollution and resource taxes.

    I think direct taxes are less potentially deceptive and offer less risk of inflationary problems.

  • Comment Link  Dick Eastman Friday, 26 January 2018 21:46 posted by Dick Eastman

    Number 3, the way the provision of the money is to be provided is an important one. The dividend must be provided by autonomous money creation, from thin-air, without the co-creation of an obligation for someone to pay principal and interest on the largess, someone like the tax payers. A deficit financed "guaranteed income" does not escape the problem of interest drain ultimately causing deflation.

    YT video: "Let's Have a Populist Republic" vt-W67VlCWo

  • Comment Link  Dick Eastman Friday, 26 January 2018 21:46 posted by Dick Eastman

    The most important difference is number three, how the presentation of the money originates. The dividend must be provided in new "thin-air" national money that is not co-created with a new debt inflicted on the taxpayers.

    YT video: "Let's Have a Populist Republic" vt-W67VlCWo

  • Comment Link  Francis L. Goodwins Friday, 26 January 2018 21:45 posted by Francis L. Goodwins

    What if you were to work on the assumption that the idea of a universal Basic Income Guarantee is actually in its infancy, and then see what the Social Credit concept of National Dividend could contribute to maturing the uBIG idea?

  • Comment Link  Wallace Klinck Friday, 26 January 2018 21:44 posted by Wallace Klinck

    Thanks for this clear differentiation between the Social Credit consumer credits to be issued without debt as National Dividends to all citizens and for compensation or lowering of retail prices (i.e., to effect Compensated Prices).

    Most citizens do not realize that the banking system already issues new credits in the form of consumer loans which are issued from created credit to expand the money supply. The crucial issue is that the banks claim ownership of this loan credit-money, which means that they must repaid from future earnings and accounted in production costs as inflationary charges.

    Who owns the community's credit--the banks or the citizens?

    The banks do not create the real wealth which they monetize by their creation of money via loans. By virtue of this false claim, the banks--having a virtual monopoly of credit creation-- have literally claimed ownership of the earth and have appropriated the communal real capital. So long as the banks continue to issue expansionary loans this claim is deferred to the future. But when a balanced-budget is proposed and the banks constrict credit they then begin to actually exercise this wrongful claim of credit ownership by literally foreclosing upon the real assets of the nation. The whole operation takes on the aspect of a colossal counterfeiting scheme--a giant Ponzi operation with those at the apex of the pyramid sweeping in the wealth and power at the expense of those in the lower economic strata of the society.

    The call for a so-called "balanced budget" is a recognition not only that the banking institutions do hold de facto ownership of the earth but also gives permission to them to exercise that claim directly by widespread foreclosure and seizure of the community's real wealth.

    The fact of the matter is that the the price-system, operating under current conventions of faulty financial cost-accountancy, generates cost and prices at an increasingly greater rate of flow that it pays out incomes. Under such circumstances, there exists an absolute necessity to compensate for this inherent deficiency of effective consumer purchasing-power by a monetary source extraneous to the price-system. As such, with all money effectively being supplied as debt to the banking system a balanced budget is simply a mathematical impossibility in the context of a functioning economy.

    Attempts to impose a balanced budget introduce and entirely artificial restraint upon production and consumption which is unrelated to actual physical potential. Instead of money serving the community, the community is subject to the control and policy of the financial system. This is an inversion of the proper function of money which latter in the modern economy is simply a system of accountancy which should, but does not, merely reflect the actual facts of production and consumption in a passive manner. A "balanced budget" is merely a means to assert the supremacy of banking through control of money over mankind.

    Unfortunately, because of their experiences as individuals when they spend beyond their monetary income, most people are easily led by the false appeal of politicians and financiers who advocate balancing of government budgets--a measure which simply contracts the flow of credit and ensures that the budgets of lesser entities, previously financed or "carried" by public debt, are impossible of balancing. Budgets in the generic sense should be no more balanced than the actual real credit of society, i.e., the physical and psychological capacity of deliver goods and services as, when and where required or desired.

    Godenich should be referred to C. H. Douglas's article "The Fallacy of a Balanced Budget" ("The New English Weekly", July 28, 1932) which can be found, I believe, in the Archives of this site.

  • Comment Link  Oliver Heydorn Friday, 26 January 2018 21:43 posted by Oliver Heydorn

    Hi Godenich,

    In general, it must be appreciated that Social Credit and hence the National Dividend cannot be properly understood within the context of either the theory or practice of economic orthodoxy. Gaining a proper understanding of both Social Credit and of what is really going on with the economy requires a substantial paradigm shift.

    The National Dividend is not to be financed by any kind of tax, payroll or otherwise, nor by temporary deficit spending. The purpose of the National Dividend is to help fill the underlying gap between consumer prices and consumer purchasing power. Social Credit claims that, for a variety of reasons, the existing economic system does not distribute sufficient consumer income to purchase in full the corresponding volume of consumer goods and services. This gap is presently filled, in the main, by compensatory debt-money via additional loans to governments, businesses, and/or consumers. Social Credit proposes that in lieu of these methods, the gap be filled with money that is created debt-free. Some of that money would be distributed to consumers in the form of a National Dividend and should be, in a highly industrialized country, sufficient to meet each person's basic needs. The rest of the debt-free money needed to bridge the gap would be injected in the form of a National Discount on retail prices.

    Furthermore, it is impossible under the current system for everyone to have a balanced budget if equilibrium is to be maintained. The demand for universally balanced budgets as a key component of fiscal responsibility only makes sense if Say's law holds. Social Credit says that Say's law does not hold. Some economic actor, i.e., the government, businesses, or consumers, must contract additional debt in order to provide the economy with the consumer purchasing power that it chronically lacks. Insisting that the government must balance its budget is merely putting additional pressure on other economic actors to unbalance theirs. Social Credit proposes that by filling the gap with an adequate volume of debt-free money, consumers would actually be able to spend more than they receive from work-derived incomes. In the same way, businesses and governments would receive more money than they injected into the economy. Since revenue would exceed expenditures or incomes with the proper distribution of the societal profit, no one would have or need to have a balanced budget in the conventional sense.

  • Comment Link godenich Friday, 26 January 2018 21:42 posted by godenich

    This is interesting. I just got a copy of:

    "Higher Production by a bonus on National Output", by Dennis Milner, published by London: George Allen & Unwin Lt., 1920.

    I'm just starting to read it.

    A minimum income at the 'relative poverty level' in combination with a balanced budget seems promising. It may be funded by a combination of payroll tax and any temporary deficit spending to overcome liquidity traps in a downturn, then recouped in the upturn. Relative poverty in the US is approximately $12 thousand per year at present.

    I'm very curious how a 'national dividend' might blend in the mix.

    I do view the combination of minimum income and a balanced budget as a fiscally responsible non-monetary liquidity complement for the economy that is less prone to creating asset bubbles.

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