A group of social reformers, impatient with the present "rag bag" of measures to combat poverty, propose to wipe it out in a single swoop. The government would simply guarantee to everybody, regardless of whether or not he worked, could work, or was willing to work, a minimum income. This guaranteed income would be sufficient for his needs, "enough to enable him to live with dignity."
The reformers estimate that the guaranteed income ought to range somewhere between $3,000 and $6,000 a year for a family of four.
This is not merely the proposal of a few starry-eyed private individuals. The National Commission on Technology, Automation, and Economic Progress, established by Congress in 1964, brought in a 115-page report to the President on February 4 of this year recommending guaranteed incomes for all. And in January the President’s Council of Economic Advisers indicated approval of "uniformly determined payments to families based only on the amount by which their incomes fall short of minimum subsistence levels." This plan, they declared, "could be administered on a universal basis for all the poor and would be the most direct approach to reducing poverty."
The plan is spelled out and argued in detail in a book called The Guaranteed Income, a symposium of articles by ten contributors, edited by Robert Theobald, who calls himself a "socio-economist." Mr. Theobald has contributed three of the articles, including his preface.
Of the following three paragraphs, Mr. Theobald prints the first two entirely in italics:
"This book proposes the establishment of new principles specifically designed to break the link between jobs and income. Implementation of these principles must necessarily be carried out by the government….
"We will need to adopt the concept of an absolute constitutional right to an income. This would guarantee to every citizen of the United States, and to every person who has resided within the United States for a period of five consecutive years, the right to an income from the federal government to enable him to live with dignity. No government agency, judicial body, or other organization whatsoever should have the power to suspend or limit any payments assured by these guarantees….
"If the right to these incomes should be withdrawn under any circumstances, government would have the power to deprive the individual not only of the pursuit of happiness, but also of liberty and even, in effect, of life itself. This absolute right to a due-income would be essentially a new principle of jurisprudence."
The contributors to this volume have arrived at these extraordinary conclusions not only because they share a number of strange ideas of jurisprudence, of "rights," of government, and of the true meaning of liberty and tyranny, but because they share a number of major economic misconceptions.
Nearly all of them seem to share the belief, for example, that the growth of automation and "cybernation" is eliminating jobs so fast (or soon will be) that there soon just won’t be jobs for even the most industrious. "The continuing impact of technical change will make it impossible to provide jobs for all who seek them." The goal of "jobs for all" is "no longer valid." And so on.
Ancient Fears of Automation
The fears of permanent unemployment as a result of technological progress are as old as the Industrial Revolution in the late eighteenth and early nineteenth century. They have been constantly reiterated in the last thirty-five years and as often completely refuted. It is sufficient to point out here that not only has the average unemployment of slightly less than 5 per cent in the last twenty years not been growing, and that two-thirds of the jobless have usually remained so for periods of not more than ten weeks, but that the total volume of employment in the United States has reached a new high record in nearly every one of these years.
Even if it were true, as the authors of the guaranteed income proposal contend, that the American free enterprise system will soon become so productive that more than anybody really wants can be produced in half the time as now, why would that mean the disappearance of jobs? And how could that justify half the population’s, say, being forced to work forty hours a week to support the other half in complete idleness? Why couldn’t everybody work only in the mornings? Or half in the mornings and the other half in the afternoons at the same machines? Or why could not some people come in on Mondays, others on Tuesdays, and so on? It is difficult to understand the logic or the sense of fairness of those who contend that as soon as there is less to be done some people must be supported in idleness by all the rest.
"An Absolute Right"
But that is precisely the contention of the advocates of the guaranteed annual income. These handout incomes are to be given as "an absolute constitutional right," and not to be withheld "under any circumstances." (Theobald’s italics.) This means that the recipients are to continue to get this income not only if they absolutely refuse to seek or take a job, but if they throw the handout money away at the races, or spend it on prostitutes, on whiskey, cigarettes, marijuana, heroin, or what not. They are to be given "sufficient to live in dignity," and it is apparently to be no business of the taxpayers if a recipient chooses none the less to live without dignity, and to devote his guaranteed leisure to gambling, dissipation, drunkenness, debauchery, dope addiction, or a life of crime. "No government agency, judicial body, or other organization whatsoever should have the power to suspend or limit any payments assured by these guarantees." This is surely a "new principle of jurisprudence."
Unrealistic Cost Estimates
How much income do the guaranteed-income advocates propose to guarantee? They differ regarding this, but practically all of them think the government should guarantee at least what they and government officials call the "minimum maintenance level" or the "poverty-income line." The Social Security Administration calculated that the 1964 poverty-income line for nonfarm individuals was $1,540 a year. A nonfarm family of four was defined as poor if its money income was below $3,130. The Council of Economic Advisers has calculated that by this standard 34 million out of our 190 million 1964 population, or 18 per cent, were living in poverty. This is in spite of the $40 billion total spent in welfare payments, of which it estimated that $20 billion (in the fiscal year 1965) went to persons who were, or would otherwise have been, below the poverty-income line.
How much would a guaranteed-income program cost the taxpayers? This would depend, of course, on how big an income was being guaranteed. Many of the income-guarantee advocates think that a guarantee merely of the poverty-line income would be totally inadequate. They appeal to other "minimum" budgets put together by the Social Security Administration or the Bureau of Labor Statistics, some of which run up to nearly $6,000 for a family of four.
One of the contributors to the Theobald symposium makes the following estimates of the cost to the taxpayers of different guarantees:
For a "minimum maintenance" level of $3,000 a year: total cost, $11 billion a year.
For an "economy" level of $4,000: $23 billion a year.
For a "modest-but-adequate" level of $5,000: $38 billion a year.
These figures are huge, yet they are clearly an underestimate. For the calculations take it for granted that those who could get government checks of $3,000 to $5,000 a year, as an absolute guarantee, without conditions, would continue to go on earning just as much as before. But as even one of the contributors to the Theo-bald symposium, William Vogt, remarks: "Those who believe that men will want to work whether they have to or not seem to have lived sheltered lives."
Who Would Do the Work?
He goes on to point out, with refreshing realism, how hard it is even today, before any guaranteed income, to get people to shine shoes, wash cars, cut brush, mow lawns, act as porters at railroad or bus stations, or do any number of other necessary jobs. "Millions of service jobs are unfilled in the United States, and it is obvious that men and women will often prefer to exist on small welfare payments rather than take the jobs…. If this situation exists before the guaranteed income is made available, who is going to take care of services when everyone can live without working—as a right?"
Who is, in fact, going to take the smelly jobs, or any low-paid job, once the guaranteed income program is in effect? Suppose, as a married man with two children, your present income from some nasty and irregular work is $2,500 a year. Comes the income guarantee, and you get a check in the mail from the government for $630. This is accompanied by a letter telling you that you are entitled as a matter of unconditional right to the poverty-line income of $3,130, and this $630 is for the difference between that and your earned income of $2,500. You are happy — for just a day. Then it occurs to you that you are a fool to go on working at your nasty job or series of odd jobs for $2,500 when you can stop work entirely and get the full $3,130 from the government.
So the government would, in fact, have to pay out a tremendous sum. In addition, it would create idleness on a huge scale. To predict this result is not to take a cynical view, but merely to recognize realities. The beneficiaries of the guaranteed income would merely be acting sensibly from their own point of view. But the result would be that the fifth of the population now judged to be below the poverty line would stop producing even most of the necessary goods and services it is producing now. The unpleasant jobs would not get done. There would be less total production, or total real income, to be shared by everybody.
The Shifting "Poverty Line"
But so far we have been talking only about the effect of the guaranteed income on the recipients whose previous incomes have been below the poverty line. What about the other four-fifths of the population, whose incomes have previously been above it? What would be the effect on their incentives and actions?
Suppose a married man with two children found at the end of a year that he had earned $3,500? And suppose he found that his neighbor, with the same-sized family, had simply watched television, hung around a bar, or gone fishing during the year and had got a guaranteed income from the government of $3,130? Wouldn’t the worker begin to think that he had been something of a sap to work so hard for a mere $370 net, and that it would be much better to lead a pleasantly idle life for just that much less? And wouldn’t the same thing occur to all others whose earned incomes were only slightly above the guarantee?
It is not easy to say how far above the guarantee any man’s income would have to be for this consideration not to occur to him. But we would do well to remember the following figures: The median or "middle" income for all families in 1964 was $6,569. The median income for "unrelated" individuals was $1,983. People with these incomes or less — i.e., half the population—would be near enough to the guarantee to wonder why they weren’t getting any of it.
Someone Must Pay
If "everybody should receive a guaranteed income as a matter of right" (and the italics are Mr. Theobald’s), who is to pay him that income? On this point the advocates of the guaranteed income are either beautifully vague or completely silent. The money, they tell us, will be paid by the "government" or by the "State." "The State would acknowledge the duty to maintain the individual."
The state is a shadowy entity that apparently gets its money out of some fourth dimension. The truth is, of course, that the government has nothing to give to anybody that it doesn’t first take from someone else. The whole guaranteed-income proposal is a perfect modern example of the shrewd observation of the French economist, Bastiat, more than a century ago: "The State is the great fiction by which everybody tries to live at the expense of everybody else."
Rights vs. Obligations
None of the guaranteed-income advocates explicitly recognizes that real "income" is not paper money that can be printed at will but goods and services, and that somebody has to produce these goods and services by hard work. The proposition of the guaranteed-income advocates, in plain words, is that the people who work must be taxed to support not only the people who can’t work but the people who won’t work. The workers are to be forced to give up part of the goods and services they have created and turn them over to the people who haven’t created them or flatly refuse to create them.
Once this proposition is stated bluntly, the spuriousness in all the rhetoric about "the absolute constitutional ‘right’ to an income" becomes clear. A true legal or moral right of one man always implies an obligation on the part of others to do something or refrain from doing something to ensure that right. If a creditor has a right to a sum of money owed to him on a certain day, the debtor has an obligation to pay it. If I have a right to freedom of speech, to privacy, or to the ownership of a house, everyone else has an obligation to respect it. But when I claim a "right" to "an income sufficient to live in dignity," whether I am willing to work for it or not, what I am really claiming is a right to part of somebody else’s earned income. What I am asserting is that he has a duty to earn more than he needs or wants to live on so that the surplus may be seized from him and turned over to me to live on.
What the guaranteed-income advocates are really saying, behind all their high-sounding phrases and humanitarian rhetoric, is something like this: "Look, we find ourselves with this wonderful apparatus of coercion, the government and its police forces. Why not use it to force the workers to pay part of their earnings over to the nonworkers?"
Lack of Understanding
We can still believe in the sincerity and good intentions of these people, but only by assuming an appalling lack of understanding on their part of the most elementary economic principles. "This book," writes Robert Theobald, "proposes the establishment of new principles specifically designed to break the link between jobs and income." But we cannot break the link between jobs and income. True income is not money, but the goods and services that a money will buy. These goods and services have to be produced. They can only be produced by work, by jobs. We may, of course, break the link between the job and the income of a particular person, say Paul, by giving him an income whether he consents to take a job or not. But we can do this only by seizing part of the income of some other person, say Peter, from his job. To believe we can break the link between jobs and income is to believe we can break the link between production and consumption. Goods have to be produced by somebody before they can be consumed by anybody.
Claimants to Be Trusted, Taxpayers to Be Examined
One reason for the agitation for an unconditionally guaranteed income is the dislike of some social reformers for the "means test." The means test is disliked on two grounds — that it is "humiliating" or "degrading," and that it is administratively troublesome — "a comprehensive examination of means and resources, applicant by applicant." The guaranteed-income advocates think they can do away with all this by using the "simple" mechanism of having everybody fill out an income tax blank, whereupon the government would send a check to everybody for the amount that his income, so reported, fell below the government’s set "poverty-line" minimum.
The belief that this income-tax mechanism would be administratively simple is a delusion. Before the introduction of the withholding mechanism, before the reporting requirements for payments made to individuals in excess of $600 in any year, and the still more recent requirements for the reporting of even the smallest interest and dividend payments, the income tax was in large part a self-imposed tax. The government depended heavily on the taxpayer’s conscientiousness and honesty. To a substantial extent it still does.
The government can check the honesty of individual returns only by a random or arbitrary sampling process. It is altogether probable that more evasion and cheating go on in the low income-tax returns than in the high ones—not because the big-income earners are more honest, but simply because their chances of being examined and caught are higher. The amount of concealment and falsification that would be practiced by persons trying to get as high a guaranteed income as possible would probably be enormous. To minimize the swindling, the government would have to resort to the same case-by-case and applicant-by-applicant process as it does to administer current relief, unemployment insurance, and social security programs.
Is a means test for relief necessarily any more humiliating than the ordeal that the taxpayer must go through when his income tax is being examined, and when every question he is asked and record he is required to provide implies that he is a potential crook? If the reply is that this inquisition is necessary to protect the government from fraud, then the same reply is valid as applied to applicants for relief or a guaranteed income. It would be a strange double standard to insist that those who were being forced to pay the guaranteed income to others should be subject to an investigation from which those who applied for the guaranteed income would be exempt.
Finally, the income-tax mechanism would be irrelevant to the real problem with which the guaranteed-income advocates profess to be concerned. For the applicants would presumably be reporting last year’s income, which would have no necessary relation to their present need. An applicant’s income in the previous year or other previous period might be either much higher or much lower than it is today. The process would not meet present emergencies, such as illness or temporary loss of employment. The guaranteed-income payment might either come too late or prove unneeded or excessive.
Old Subsidies Never Die
One of the main selling arguments of the guaranteed-income advocates is that its net cost to the taxpayers would not be as great as might appear at first sight because it would be a substitute for the present "mosaic" or "rag bag" of measures designed to meet the same goal — social security, unemployment compensation, medicare, direct relief, free school lunches, stamp plans, farm subsidies, housing subsidies, rent subsidies, and all the rest.
Neither the record of the past nor a knowledge of political realities supports such an expectation. One of the main selling arguments in the middle 1930′s, first for unemployment insurance and later for social security, was that these programs would take the place and eliminate the need for the various relief programs and payments then in existence. But in the last thirty years these programs have continued to grow year by year with only minor interruptions. The result is that public assistance payments (including old age assistance, aid to dependent children, general assistance, etc.) have risen from a total of $657 million in 1936 to $4,736 million in 1963, an increase of 620 per cent. And this cost is in addition to the present $30 billion or more that the Federal government now spends annually on social security and other welfare programs.
So not only may we expect that the guaranteed-income would be thrown on top of all existing welfare payments (we can expect a tremendous outcry against discontinuing any of them), but that demands would arise for constant enlargement of the guaranteed amount. If the average payment were merely the difference between an assumed "poverty-line" income of, say, $3,000 and what the family had earned itself, all heads of families earning less than $3,000 would either quit work or threaten to do so unless they were given the full $3,000, and so allowed to "keep" whatever they earned themselves. And once this demand was granted (in an effort to avoid the wholesale idleness and pauperization that would otherwise occur), the people whose earnings were just above the government minimum, or less than twice as much, would point out how unjustly they were being treated. And the only "logical" and "fair" stopping place, it would be argued, would be to give everybody the full minimum of $3,000 no matter how much he was earning or getting from other sources.
Anyone who thinks such a prediction farfetched need merely recall how we got into the present system of paying everybody over 72 social security benefits regardless of his current earnings from other sources, and paying benefits to every retired person over 65 regardless of the size of his unearned income from other sources. By the same logic, the British government pays comprehensive unemployment, sickness, maternity, widowhood, funeral and other benefits, and retirement pensions, regardless of need or the size of the recipient’s income.
We have seen how the guaranteed-income plan, if adopted in the form that its advocates propose, would lead to wholesale idleness and pauperization among nearly all those earning less than the minimum guarantee, and among many earning just a little more. But it would also undermine the incentives of those much further up in the income scale. For they would not only be deprived of the benefits that they saw millions of others getting. It is they who would be expected to pay these benefits, through the imposition upon them of far more burdensome income taxes than they were already paying. If these taxes were steeply progressive in proportion to income, as is probable, they would discourage long hours and unusual effort.
It is difficult to make any precise estimate of the effect of a given income-tax rate in discouraging or reducing work and production. Different individuals will, of course, be differently affected. The activities of a man whose whole income comes in the form of a single salary from a single job will be differently affected than those of a surgeon, a doctor, a writer, an actor, an architect, or anyone whose income varies with the number of assignments he is willing to undertake or clients he is willing to serve.
What we do know is that the higher income-tax rates, contrary to popular belief, just don’t raise revenue. In the current 1966 fiscal year, individual income taxes are estimated to be raising $51.4 billion (out of total revenues of $128 billion). Yet the tax rates in excess of 50 per cent have been bringing in only about $250 million a year — less than 1 per cent of total income tax revenues and not enough to run even the present government for a full day. (In other words, if all the personal income-tax rates above 50 per cent were reduced to that level, the loss in revenue would be only about $250 million.) If these rates above 50 per cent were raised further, it is more probable that they would raise less revenue than more. Therefore, it is the income‑tax rates on the lower and middle incomes that would have to be raised most, for the simple reason that 75 per cent of the personal income of the country is earned by people with less than $15,000 gross incomes.
Poverty for All
It is certain that high income tax rates discourage and reduce the earning of income, and therefore the total production of wealth, to some extent. Suppose, for illustration, we begin with the extreme proposal that we equalize everybody’s income by taxing away all income in excess of the average in order to pay it over to those with incomes below the average. (The guaranteed income proposal isn’t too far away from that!)
Let us say that the present per capita average yearly income is about $2,800. Then everybody who was getting less than that (and would get just that whether he worked or not) would, of course, as with the guaranteed-income proposal, not need to work productively at all. And no one who was earning more than $2,800 would find it worth while to continue to earn the excess, because it would be seized from him in any case. More, it would soon occur to him that it wasn’t worth while earning even the $2,800, for it would be given to him in any case; and his income would be that whether he worked or not. So if everybody acted under an income equalization program merely in the way that seemed most rational in his own isolated interest, none of us would work and all of us would starve. We might each get $2,800 cash (if someone could be found to continue to run the printing machines just for the fun of it), but there would be nothing to buy with it.
A less extreme equalization program would, of course, have less extreme results. If only 90 per cent of all incomes over $2,800 were seized and people could keep 10 cents of every "excess" dollar they earned, there would of course still be a little incentive to earn a little more. And if everyone could keep 25 cents out of every dollar he earned above the $2,800, the incentive would be slightly higher.
But every tax or expropriation must reduce incentives to a certain extent. The effect of the guaranteed-income proposal would be practically to wipe out incentives for those earning (or even wanting) no more than the guarantee, and greatly to reduce incentives for all those earning or capable of earning more than the guarantee. Therefore the guaranteed-income would reduce effort and earning and production. It would violently reduce the national income (measured in real terms). And it would reduce the standard of living for four-fifths of the population. The government might be able to pay out the specified amount of guaranteed dollar "income," but the purchasing power of the dollars would appallingly shrink.
The Negative Income Tax
Recognizing the calamitous erosion of incentives that would be brought about by a straight guaranteed income plan, other reformers have advocated what they call a "negative income tax." This proposal was put forward by the prominent economist, Professor Milton Friedman of the University of Chicago, in his book Capitalism and Freedom, which appeared in 1962. The system he proposed would be administered along with the current income tax system.
Suppose that the poverty-line income were set at $3,000 per "consumer unit" (families or individuals), and suppose that the negative income tax (which is really a subsidy), were a flat rate of 50 per cent. Then every "consumer unit" (this is the statisticians’ technical term) whose income fell below $3,000 would be paid a subsidy of, say, 50 per cent of the difference. If its earned income were $2,000, for example, it would receive $500; if its earned income were $1,000 it would receive $1,000; if its earned income were zero it would receive $1,500.
Professor Friedman freely concedes that his proposal, "like any other measure to relieve poverty… reduces the incentives of those helped to help themselves." But he argues that "it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would. An extra dollar earned always means more money available for expenditure."
It is true that the "negative income tax" would not have quite the destructive effect on incentives that the guaranteed income would. Nevertheless, once the principle of the negative income tax were accepted, the demand would immediately arise that the minimum subsidy to be paid should be at least "adequate" to provide a minimum income to support a family "in decency and dignity." So we would be back to the minimum guaranteed income, plus supplemental subsidies for those who already had some earned or private income of their own. If this minimum were set at $3,130 for a married man with two children (to return to the Social Security Administration’s "poverty-line" figure), this subsidy would be reduced, say, by 50 cents for every dollar earned, and therefore would not stop entirely until the family’s own earned income had reached $6,240.
Not Enough Rich to Soak
How many billions of dollars in subsidies this would involve, and what rate of income tax would be required on all families with incomes above $6,240 to raise the revenue necessary to pay these subsidies, if any rate could, I leave to the professional statisticians to calculate.
But it is obvious that this program could not be paid for by "the rich." If we were to subsidize all family incomes below $6,240 it would be hardly consistent to tax them. Yet net incomes below $6,000 (after exemptions and deductions) are now taxed at rates up to 22 per cent, beginning with 14 per cent even on the first $500 of net income. In fact, all personal net income of $6,000 or less is now the source of nearly 80 per cent of all personal income tax revenue. Yet, as I have already pointed out, the Census Bureau calculates that the median income for all families in 1964 was only $6,569; and taxpayers with adjusted gross incomes of $15,000 or less receive three-quarters of the total personal income there is to be taxed.
Neither a "negative income tax” nor a guaranteed income plan of the dimensions being suggested could possibly be put into effect with dollars of present purchasing power.
It may be added that the negative income tax would have all the administrative problems that would afflict the guaranteed income proposal — fraud, corruption, necessary applicant-by-applicant investigation, and irrelevance of payment to present need.
And once the main principle of either proposal were accepted, the minimum subsidy or guarantee demanded would be bound constantly to increase. Anyone who doubts this need merely consult the history of unemployment insurance and social security benefits since the plans were initiated in the 1930′s. It is significant that several of the advocates of the guaranteed income acknowledge that their idea originated with the more modest negative income tax proposal of Milton Friedman. They just expanded it.
So knowing what we do of political pressures, and of the past history of relief, "social insurance," and other "antipoverty" measures, we are forced to conclude that once the principle of either the negative income tax or the guaranteed income were accepted, it would be made an addition to and not a substitute for the present conglomeration of relief and "antipoverty" programs. And even alone it would drastically reduce the productive incentives of those earning less than the guaranteed amount and seriously reduce the incentives of those earning more, because of the oppressive taxation it would necessarily involve. Its over-all effect would be to level real incomes down, not up.
Even at present our large and overlapping assortment of relief and antipoverty measures is seriously reducing incentives to the production that would otherwise be possible. Our social reformers have been everywhere overlooking the two-sided nature of the problem of reducing poverty. The obstinate two-sided problem we face is this: How can we mitigate the penalties of misfortune and failure without undermining the incentives to effort and success?
The Poor Laws of England
Our social reformers — who sometimes talk as if no government ever did anything to relieve the plight of the jobless and the poor until the New Deal came along in 1933 — are constantly deploring the alleged indifference, callousness, or niggardliness of our forefathers in dealing with the poor. But wholly apart from private charity, previous generationsin their governmental capacity were sharply aware of the problem of poverty and made some effort to alleviate it almost as far back as the records go. There were "poor laws" in England even before the days of Queen Elizabeth. A statute of 1536 provided for the collection of voluntary funds for the relief of those unable to work. Eleven years later the City of London decided that these voluntary collections were insufficient, and imposed a compulsory tax to support the poor. In 1572 a compulsory tax for this purpose was imposed on a national scale.
But the problem soon proved a very serious one for the people of that age. The upper class was very small numerically and proportionately. The middle class itself was always very close to what we would today call the poverty line. The workhouse and other conditions imposed on those on relief seem very cruel to us today. But our ancestors were in constant fear that if they increased relief or relaxed the stern conditions for it they would pauperize increasing numbers of the population and create an insoluble problem.
At the beginning of the nineteenth century, indeed, the cost of poor relief began to get out of hand. The total cost of the poor law administration increased fourfold in the thirty-two years between 1785 and 1817, and reached a sixth of the total public expenditure. One Buckinghamshire village reported in 1832 that its expenditure on poor relief was eight times what it had been in 1795, and more than the rental of the whole parish had been in that year.
In face of statistics of this kind, England’s Whig government decided to intervene. It appointed a royal commission, and in 1834 a new and more severe poor law was passed in accordance with the commission’s recommendations.
The guiding principle of the new law was that poor relief should be granted to able-bodied poor and their dependents only in well-regulated workhouses under conditions inferior to those of the humblest laborers outside. This seemed harsh, but the commissioners had argued that "every penny bestowed that tends to render the condition of the pauper more eligible than that of the independent laborer is a bounty on indolence and vice."
If the pendulum swung too far in the direction of severity and niggardliness in the middle nineteenth century, it may be swinging too far in the direction of laxity and prodigality today. As weeping subsidization of idleness, such as is proposed by the guaranteed income, would only weaken or destroy all incentive to effort, not only on the part of those who were subsidized and supported, but on the part of those who would be forced to support them out of their own earnings. There could be no faster way to impoverish the nation.
The Cure Is Production
One of the worst features of all the plans for sharing the wealth and equalizing or guaranteeing incomes is that they lose sight of the conditions and institutions that are necessary to create wealth and income in the first place. They take for granted the existing size of the economic pie; and in their impatient effort to see that it is sliced more equally they overlook the forces that have not only created the pie in the first place but have been baking a larger one year by year. Economic progress and justice do not consist in beautifully equalized destitution, but in the constant creation of more and more goods and services, of more and more wealth and income to be shared.
The only real cure for poverty is production.
The way to maximize production is to maximize the incentives to production. And the way to do that, as the modern world has discovered, is through the system known as capitalism — the system of private property, free markets, and free enterprise. This system maximizes production because it allows a man freedom in the choice of his occupation, freedom in his choice of those for whom he works or who work for him, freedom in the choice of those with whom he associates and cooperates, and, above all, freedom to earn and to keep the fruits of his labor. In the capitalist system each of us, with whatever exceptions, tends in the long run to get what he creates or helps to create. When each of us recognizes that his reward depends on his own efforts and output, and tends to be proportionate to his output, then each has the maximum incentive to maximize his effort and output.
No Effective Poverty Programs for Underdeveloped Countries
Capitalism brought the Industrial Revolution, and the enormous increase in productivity which this has made possible. Capitalism has enormously raised the economic level of the masses. It has wiped out whole areas of poverty, and continues to wipe out more. The so-called "pockets of poverty" constantly get smaller and fewer.
The condition of poverty, moreover, is relative rather than absolute. What we call poverty in the United States would be regarded as affluence in most parts of Africa, Asia, or Latin America. If an income sufficient to enable a man "to live with dignity" ought to be "guaranteed" as a matter of "absolute right," why don’t the advocates of a guaranteed income insist that this right be enforced first of all in the poor countries, such as India and China, where the need is most widespread and glaring? The reason is simply that even the better-off groups in these nations have not produced enough wealth and income to be expropriated and distributed to others.
One of the guaranteed-income advocates, in a footnote, admits naively: "We must also recognize that we still have no strategy for the elimination of poverty in the underdeveloped countries." Of course they haven’t. The "strategy" would be the introduction of free enterprise, and of incentives to work, to save, to accumulate capital, better tools, and equipment, and to produce.
But would-be income guarantors ignore or despise the capitalistic system that makes their dreams dreamable and gives their redistribute-the-income proposals whatever plausibility they have. The capitalist system has made this country the most productive and richest in the world. It has continued to achieve its miracles even in the last generation, and to increase them year by year. It has raised the average weekly factory wage from less than $17 in 1933 to $110 today. Even after the rise in prices is allowed for, it has more than doubled our real per capita disposable income — from $893 in 1933 to $2,200 in 1965.
Allowed to continue to operate with even the relative freedom that it has enjoyed in recent years, the capitalist system will continue to produce these miracles. It will continue to make progress against poverty by a general increase in income and wealth. But shortsighted and impatient efforts to wipe out poverty by severing the connection between effort and reward can only lead to the growth of a totalitarian state, and destroy the economic progress that this country has so dearly bought.