Unearned Income for All

I live in upstate New York, famous for its populist politics in the 19th century. It produced not only utopian experiments (including the Oneida and Shaker communities), but religious revivals and innovations (the ‘burnt over’ district, the Mormons), as well as political movements (the Underground Railroad and the Suffragette movement). We also had the Rent Wars, in which long-suffering tenants of landlords controlling thousands, even millions, of acres rebelled, in the early 19th century, with limited success, against their economic masters.

Today we’re witnessing a new round of Rent Wars, this time on a national scale. In the wake of the Coronavirus pandemic, it’s been speculated that one third of renters across the United States failed to pay their rent for April, 2020. The political impulse on the Left is to relieve them of their obligations by declaring a moratorium on rent payments, whether the landlord is a giant distant corporation or a neighbor who may own a second apartment or house they rent out. Justice is rightly served to some, no doubt, but not without costs and harms borne by owners and others; the effect is only to redistribute winners and losers, and perpetuate the struggle between them.

Anti-rent critics can be harsh, even on the little guy. David Rovics, writing in Counterpunch (6 May 20), opines: “All of these ‘mom and pop’ landlords – the ones who make a living at it – should be recognized as what they are: parasites. Rich peasants. I have advice for them: sell. Now. Then find a way to survive that doesn’t involve profiting off of our need to house ourselves. If you were so dependent on the income from your rental property that you don’t know what to do without it, what made you think that that was remotely OK as a way to make a living in the first place?”

Angry words. In the Soviet Union these ‘rich peasants’ were called kulaks; they were small but prosperous local property owners–descendants of serfs, not aristocrats–who often had acquired some rental income. They were ruthlessly persecuted by the Communist government–and often executed as enemies of the state–as part of the Soviet program of eliminating private agriculture in favor of collective farms.

Were they simply ‘parasites,’ or were they the leaders of viable local economies which, if far from perfect, served their communities better than what came afterward? Is rent necessarily an instrument of oppression, or does it play some useful role in any complex, functioning economy?

Rovics later tones down his rhetoric. It turns out what he really has in mind is something like the Danish law which prohibits anyone from owning more than two residential properties for more than two years. Still pretty utopian, by American standards.

Christopher Ketcham, in another Counterpunch piece, “Cancel Rent and Stop Playing the Landlord’s Game” (4 May 2020), throws more fuel on the fire. He invokes the theories of Henry George, another figure from the 19th century, who, Ketcham reminds us, “defined rent as the unearned income owners derived from the rising value of land, distinct from the labor that went into property in the form of improvements, the construction of homes and offices and factories, and the cultivation of fields.”

That’s the standard argument against rent: that it’s unearned income based on the passive ownership of some asset, usually land or natural resources, but also things like buildings, bonds, stocks, patents, machinery, factories, software, etc. Earned income, by contrast, is said to result from the effort of human labor to transform pre-existing assets, to create goods and services out of raw materials.

On the Left-side of our culture, unearned income has all the connotations of a bad thing, while income earned through labor is by contrast esteemed as a mark of virtue, and therefore a good thing. Recipients of rents are widely condemned for sitting back and cashing their checks, while workers have to sweat to pay the rent. What could be more unfair than that?

Social justice, in this view, calls for the elimination of rents. But is that possible, or even desirable? A society without rents would restrict private property to what can be made by one’s own hand. Ketcham, paraphrasing Henry George, writes that “the tribesman’s property was the bow and arrow he built with his hands, not the land he hunted on.”

The tribesman, leading a subsistence or nomadic life, can freely take from nature to make his bow and arrow (or house or farm, or anything else)–but only as long as not too many other tribesmen are also taking from nature to do the same. The definition of property in terms of labor does not apply to nature, to the raw materials existing prior to any human labor (unless we consider them a gift of ‘God’s labor’). Nor does labor explain how scarce collective resources can be fairly allocated before individuals are able to apply their labor to create the objects they can then claim as their own private property.

If a claim to private property can be justified only on the basis of the labor necessary to create that property–call it the Labor Theory of Value–then the resources available prior to the application of labor must be non-private property, that is, public property, or property held in common, or nature. Anti-rent proponents insist that public property be held in common, that its use be a collective, not an individual, enterprise.

Ketcham puts it this way: “The cabin in the backwoods became a prize when a mine opened up across the field, a road linked the cabin and the mine, a country store opened to supply the miners, more homes were built, a railroad came in, a town was born. The land under the cabin derived its worth only as a socially-created value. Therefore its increase in value belonged to society.”

But as long as the value of resources is owed to “society”, and not to individuals, we have a recipe for centralized state control of resources, and another kind of tyranny. As long as resources are not distributed equitably to individuals, and ownership is placed instead in the mythic person of “society,” manifest in government power, we will only exchange one set of masters for another. This is the dead end to which the Labor Theory of Value leads.

An alternative would be to grant equal access by all–individually, not collectively–to the unearned resources of nature. Nature, or our equal share of it, can be considered our birthright, and the source of value for us individually. Though entirely unearned by us, Mother Nature (land, water, air, minerals, forests, animals, and all things in the natural world) is what allows us to survive and to flourish. To the extent to which we use the resources she offers us, we exercise ownership over her.

We receive our natural inheritance as a gift, just by being born. Nature is our natural capital–the gift that keeps on giving, at least as long we can preserve (and pass on) our portion of it. The price of abundant natural capital–such as the air we breathe–is zero. Insofar as there is no end to its supply, at least for us, it remains free for all. But if a resource is rare, or if there arises competition for what is available, then it is no longer free, but commands a price. The price of natural capital is what gives it its social value. The best word for that social value is rent. Rent is the price of the use of natural capital.

Imagine a commons held by a village, with a modest pasture. If there is no limit to the number of sheep any family may graze on the pasture, the village runs the risk of overgrazing and ruining the pasture–what Garrett Hardin famously called ‘the tragedy of the commons.’ Imagine instead, however, that the village elders determine the carrying capacity of the commons to be two sheep per family, giving everyone equal access, but ensuring the perpetuation of the underlying resource. Two sheep per family constitutes the rental income to which the villagers are entitled as their share, or birthright, of nature, or, more accurately, of their right to use nature for their private benefit while preserving it in the process.

We can calculate the modern equivalent of how many ‘sheep’ (products and services) our ‘pasture’ (the national economy) can produce by adding up the net worth of the actual goods and services the economy provides on the basis of current resources, which defines its limits, or carrying capacity. According to the Federal Reserve, the net worth of the United States is defined as its “the total nonfinancial wealth–including both tangible wealth such as land, structures, and machines and intangible wealth such as patent rights–of the U.S. as a whole. Financial wealth is excluded in the estimation of U.S. net wealth because financial wealth represents agreements between parties regarding future payments, such that a financial asset of one party is always matched with an offsetting financial liability for another party. Thus, in an aggregate sense, financial wealth nets to zero across sectors, and aggregate U.S. wealth at a particular time can be represented as the sum of all of its nonfinancial assets.” (FEDS Notes, 8 October 2015, Holmquist and McIntosh)

In 2019 the non-financial assets of US households–individually owned assets, taken collectively–added up to about $40 trillion (the value of what our national ‘pasture’ produces), or about $120,000 per person (the number of ‘sheep’ each of us gets to consume each year). Of course, we do not rebuild the entire economy every year from scratch; many products and services have longer or shorter lifetimes, and often need repair as they go along. My refrigerator might be good for twenty years, my car for ten years, the paint on my house for five years, my fishing license for three years, my job contract for one year, my housing rent for a month, my groceries for a week, and so on.

To calculate the return or rent on natural assets we need to estimate and calculate their cumulative wear and tear, or entropy, or overall depreciation. For purposes of simple illustration, let’s say the overall rate of depreciation of everything we own is more or less 10 percent a year, which is at least anecdotally plausible. If that’s the case, then every year we can expect that the economy will produce for us about 10 percent of the goods and services we wear out–to the value of about $12,000–to keep us even. This would be the amount due to each of us as rent for our individual share of ownership of total natural assets–the modern equivalent of the two ‘sheep’ we can expect to get from our common ‘pasture,’ the natural world.

The idea is to institutionalize the annual rent due to us as our birthright from nature on the basis of net household worth produced every year to sustain our current state. The simplest way to do that is to establish a universal basic income. In the calculation above, it would be $12,000/person. A universal basic income need not be money that the government borrowed for this purpose. It could instead be a direct payment in a government currency on the model of Civil War era Greenbacks (see my Counterpunch article, “Monetary Justice”) to each individual of their share of rent, as calculated above, from the natural resources we share equitably. This would be to pay ourselves the rental income which is our due for our ownership of the earth and its resources.

Labor is no longer central to the economic process, and the Labor Theory of Value is no longer the definition of social justice. Capitalism itself–through a combination of outsourcing, robotics, and automation–has rendered labor, its arch enemy, largely redundant. The Coronavirus epidemic has added another blow against labor. Workers will never again be required in the mass numbers once demanded by the factory system to produce the goods and services we need. Wage-labor as we’ve known it, like it or not, is steadily moving to the periphery of economic life.

We still need many truck drivers, but only as long as it takes for self-driving trucks to replace our manually driven fleet. We still need many professors at universities, but only until on-line lectures by academic super-stars render armies of lecturers obsolete. We still need many check-out clerks at stores and markets, but only until self-checkout will be entirely automated. We still need many waiters at restaurants, but only until robots can bring us our food. We still need many doctors, but only until tele-medicine and computerized diagnostics render them unnecessary. And so on.

There is hardly any labor that cannot ultimately be eliminated from the economy. Yes, there will be a continued demand for highly-trained experts and technicians, people with unique experience and qualifications, celebrity talents, and similar specialties. But this leaves the vast bulk of the population no longer needed, except as consumers and spectators. Over time, there will be fewer and fewer jobs and a more and more redundant population. A guaranteed annual income is not only a novel idea; it may well become an unavoidable fact of life.

The trouble with the anti-rent warriorers and the Left generally is that they’re fighting the last war, which, let’s be honest, the capitalists won. The idea that the path to social justice can be based on the Labor Theory of Value has become self-defeating, an obstacle to much needed reform. Labor no longer has commanding value. Except for romanticizing intellectuals like Proudhon and Marx and their many modern successors, most workers have been under no illusion about the virtue of the labor they have been forced to perform in order to survive. Most of them aspired, if they could, to the life of ease they imagined was being led by the recipients of unearned incomes, and hoped to join their ranks. And who could blame them?

A guaranteed basic income will not itself resolve the inequities of wealth and power which bedevil our society. But it would be a beginning to that end. It’s time to recognize that two centuries of Leftist moral opposition to the sin of unearned income–redeemable only by the virtue of labor–have been unable to resolve those inequities. Indeed, they have only worsened.

The problem is not unearned income as such, but who gets it and on what terms. A universal basic income is arguably the most direct route to economic and social justice. It goes to everyone equally on a per capita basis. It recognizes as a human right a direct claim by each individual to the resources of society. It severs the tie between work and consumption for the first time, opening the road to life, liberty, and the pursuit of happiness.

Adrian Kuzminski is a scholar, writer and citizen activist who has written a wide variety of books on economics, politics, and democracy.