What would a legitimate basic income buy?

There are about 8 billion acres of land that can be used to grow crops. There are about 36 billion acres of land on the earth and there are about 7 billion people on earth. This means that each individual would receive a little over 1 acre of farmland and about 4 acres of other land if we were to divide it up today. One acre of farmland, if worked properly, can produce enough each year to feed a person.

At this density, land doesn’t just produce food on its own, so simply giving every man, woman, and child an acre of land will not feed them. The reality of the situation is that one acre of land plus a person with the knowledge and skill to work it can feed one person.

Fortunately the earth is full of bountiful other resources that also have value. These include the oceans which produce ample food to complement the farm land. It also includes oil and coal which magnify the amount of work a man can complete.

If we hit the reset button on property rights and allocated the earth's resources equally among all people through the issuance of 1 share per day per person, then the value of each share would be more than enough to sustain someone for a day. That is until market forces respond.

Trust Fund Paradox

What happens when a rich man dies and leaves his children with a huge trust fund? With all of their needs met and most of their wants covered, these individuals are often incapable of doing real work or starting real businesses. The vast majority will simply flounder as they consume their inheritance.

It is difficult to know the value of something you never had to earn. Without knowing the value of something, it is easy to squander resources.

Today’s world is much more valuable than the world 10,000 years ago due to the enhancements made by entrepreneurial individuals working hard and producing more than they consume. The root motivation for these entrepreneurial individuals is often survival. Without the threat of poverty, starvation, and/or death entrepreneurs are left with all carrot and no stick.

A world where all people inherit the earth would create a trust-fund society. Large swaths of the population would opt to produce nothing. It would be like being born into the Garden of Eden. Most people would simply pick the fruit and spend their time doing what ever fancied them (probably reproduce!)

Collapse of Productivity & New Equilibrium

Under this model the number of people willing to work a factory job or do hard labor in a field would collapse. The cost of labor would increase until it was well in excess of the daily inheritance. After all, if you received $1000 per day for life would you work any job that didn’t significantly increase your daily standard of living?

With this collapse in productivity you would see a corresponding collapse in the purchasing power of the daily inheritance. This collapse would continue until a new equilibrium was found where working hard to produce something could make a meaningful impact in your standard of living.

To put things in perspective, if no one worked at all and everyone attempted to live off of the their inheritance, then the earth would revert back to hunter-gather society and everyone would die of starvation. Long before this extreme was reached, the fall in the purchasing power of the daily income would motivate people to start producing again.

Equilibrium

The socialists among us believe they can control the economy and guarantee everyone a minimum standard of living. They believe this can be done without changing the economic incentives required to produce that standard of living. There is a feedback loop in play here.

Suppose you started out with the idea of giving everyone $1000 per day. Prices would change very quickly in response to this change in supply / demand. Eventually, $1000 per day would leave someone almost as poor (in purchasing power) as they started.

If you attempt to index the payouts to price inflation, then the ultimate result would be hyperinflation. The currency would become worthless.

Conclusion

In yesterday’s article I outlined a moral justification for a basic income defined as 1 share per day per person. I did not specify the purchasing power of that share, because that must fluctuate with supply and demand. The value of 1 share will fall until there is sufficient incentive for mankind to collectively start producing. No one knows what level that would be, but one thing is certain 1 share wouldn’t become worthless. We also know that attempting to live on this 1 share wouldn’t be pleasant to the vast majority either.

This conclusion means the socialists will not be happy because “no one should have to live on just 1 share per day” and the free market capitalists will also not be happy because “no one should get something for nothing”.

Rules for Implementing Basic Income

For any basic income system to be moral and viable then it must adhere to some very simple rules. The nominal rate of pay cannot change over time and the currency it is paid in must be free from any other meaningful sources of monetary inflation. Price inflation / deflation will then naturally establish the fair purchasing power of the basic income.

My approach to basic income is not based upon a desired outcome, but instead derived from first principles of property rights. The actual outcome is the natural result of applying fair principles for allocating the earths resources in a voluntary / non-violent manner.

As society moves to increasing levels of automation, the number of people required to actually work would fall. This would increase the value of 1 share without requiring additional labor. As the value of 1 share increases to a comfortable level (due to automation), the population will grow. This growth will increase the shares created each day until the value of 1 share falls again.

Those who are against this basic income because it is too high would deny their fellow man their natural inheritance and those who think it is too low would steal from one man to fund another. It is only in this “market balance” that all resources are fairly allocated.