I have been reading some of the academic literature on the relative merits of a Basic Income Guarantee (BIG) and Job Guarantee (JG). In the academic literature, a BIG – for example, as proposed by Van Parijs – refers to a policy in which every citizen receives a basic income irrespective of labor force participation or employment status. A JG, as readers here will realize, refers to a guaranteed job at minimum wage for anyone who wants one. In opposition to the BIG, one argument advanced by Modern Monetary Theorists (e.g., here) concerns the value of the currency, which they define as the amount of labor time required to obtain it. In making their argument, however, they reason “at the margin”. I think this is incorrect for a reason I will discuss.
In terms of policy, my own preference, as I have discussed in recent posts, is for a Job or Income Guarantee (JIG). In relation to the academic debate, I should clarify one point. In my view, the key distinction between a JIG and the current system is that there would be no conditions attached to the receipt of the basic income in the event that an individual opted out of the JG program. Whether the basic income was paid to all citizens (as proposed by Van Parijs and other academics) or only to those who opted out of the labor force would not be of enormous concern to me. In either case, everybody of working age would be guaranteed at least a basic income and there would be no compulsion to participate in the labor force. Those are the most critical points, in my opinion.
I also want to mention that I am not claiming any kind of originality in suggesting a JIG. The Modern Monetary Theorists have made clear that the JG could be implemented alongside other social or welfare policies. My focus has been on exploring the benefits of a JIG, not staking a claim to the idea, since I am simply drawing on all the serious work that has been carried out by the academics.
Modern Monetary Theorists have directed numerous criticisms against a BIG in isolation. Three of their main arguments are:
1. A JG would provide the most effective nominal price anchor.
2. A JG would provide the best demand stabilization.
3. A BIG would be inflationary – perhaps hyperinflationary – because of its effect on the value of the currency.
Arguments 1 and 2 are partly what inform my preference for a JIG rather than a BIG. They are not the main reasons for my preference. I think the benefits in terms of freedom from wage labor if desired and guaranteed employment if desired are much more important. Nevertheless, I accept that there may be some truth to arguments 1 and 2. In fact, I have suggested that, on the Modern Monetary Theorists’ own logic, the JG when part of a JIG might even be a superior nominal price anchor because employers would know participants in the JG really wanted to be involved in it and were serious about obtaining jobs in the broader economy.
However, argument 3 could be said to apply to a JIG, not just a BIG, so I wanted to address that point.
In the paper linked to above, the authors write:
As we explained in the subsection on price stability, the value of the dollar is determined on the margin by what must be done to obtain it. If money ‘grew on trees,’ its value would be determined by the amount of labor required to harvest money from trees. In an ELR program, the value of the dollar is determined on the margin by the number of minutes required to earn a dollar working in the ELR job—six minutes in our example above. Assuming that BIG provides an equivalent payment of $20,000 per year to all citizens ($10 per hour for a normal 2000 hour working year), the value of the dollar on the margin would be the amount of labor involved in retrieving and opening the envelope containing the annual check from the treasury, divided by 20,000. Obviously, the purchasing power of the dollar in terms of labor units would be infinitesimally small under a universal BIG scheme. Again, as we said above, this is the logical conclusion of the inflationary process that would be set-off by implementation of such a BIG program—it might not happen overnight.
In other words, it is argued that the (domestic) value of the currency is determined “at the margin” by the amount of labor time required to obtain a unit of currency. So in an economy with a JG, the value of the currency is determined by the amount of JG labor time it takes to obtain a unit of the currency. Under a BIG, the amount of labor time required “at the margin” to obtain a unit of the currency is zero, which supposedly drives the value of the currency to an infinitesimally small value.
I have the highest respect for the leading Modern Monetary Theorists, including of course the authors of this paper, but the argument in the above quoted passage does not strike me as convincing. Already, in the current system, it is the case that some people – the recipients of welfare, rentiers, etc. – obtain currency without performing any labor time to obtain it. So it is already the case that, if defined “at the margin”, the value of the currency would be infinitesimally small.
But I don’t consider this to be the correct way to conceive of the value of the currency. Rather, what matters is the average labor time required to obtain a unit of the currency. The provision of a basic income, just as with the payment of welfare, will reduce the average labor time required to obtain a unit of the currency, and hence will result in a one-off reduction in the value of the currency. But there is little reason to think that it would be a catastrophic decline almost to zero or one that would set off runaway inflation, let alone hyperinflation.
To compare with another area of economic analysis, there is a reason Marx argued that the value of a commodity depends on socially necessary labor time, not the minimum or the maximum amounts of labor time taken by producers of varying proficiency to produce a commodity under capitalist conditions. It was partly to avoid such strange conclusions as a commodity being more valuable if produced with the least efficiency (maximum labor time), or a commodity being valued below the level that could enable the viability of most production (based on the minimum labor time taken by the most efficient producer), that Marx emphasized the relevance of average (i.e. socially necessary) labor time.
None of this is to suggest that the value of the currency cannot be expressed in terms of JG labor time. We can think of JG labor time as involving ‘simple’ labor, conceptually reduce all other types of (‘complex’) labor to multiples of simple labor, and then express the value of the currency in terms of an amount of simple labor time. But it is not simple labor time, in isolation, that determines the value of the currency. It is the average that matters.
Since the payment of a basic income will reduce the amount of labor time performed in formal employment per dollar of income received, it can be said to reduce the average (socially necessary) labor time required to obtain a unit of the currency. However, this effect would seem to be of a similar order of magnitude to the effects of paying welfare under the current system, not some extreme (hyperinflationary) collapse in the value of the currency governed by “the margin”.
As an aside, this also suggests to me that the academic MMT argument against the BIG is not as strong as is often made out.
As far as I am concerned, the strongest argument in favor of the JIG is the freedom it makes possible for those who want wage or salary employment but are currently barred from it due to a deliberate government policy choice along with the freedom it offers to those who desire liberation from the compulsion of the wage labor relation in order to pursue vocations of their own choosing.
Lastly, I want to reiterate the main point of my previous post, which is that a JIG may well promote greater social productiveness. Even though the measured value of the currency may fall with the introduction of the JIG, it may be that social productiveness actually increases as those freed from the wage labor relation pursue productive activities of their own volition either individually or in voluntary combination with other like-minded individuals. It may be that true output (even though unmeasured) increases and the true value of the currency (even though unobserved) also increases.