The history of cash transfers

Ugo Gentilini’s book ‘Timely Cash: Lessons From 2,500 Years of Giving People Money’,  is out now.

There is a vast body of research on cash transfers

Ugo Gentilini highlights that over the past 40 years, approximately 1.4 million papers have been written on cash transfers. While these studies generally conclude that cash transfers have positive effects, significant debate surrounding their implementation and impact persists.

Gentilini’s latest book delves into the global history of cash transfers, shedding light on current debates by examining how similar discussions have played out throughout history. Remarkably, cash transfers have existed for thousands of years, with some historical practices bearing a striking resemblance to modern approaches. 

‘Well this family tree goes back... 2500 years and as you say you can see how many of these cash transfers in the past are recognisable as the sort of policies that we have now, the arguments that we have now.’

Similarities between cash transfers of the past and present

A current referendum in Alaska regarding the future of a longstanding universal cash transfer programme has parallels to ancient Athens 2,500 years ago. In Athens, a universal cash scheme sparked a similar debate when a new silver mine was discovered and the allocation of the newfound wealth was decided via a referendum.

During the COVID-19 pandemic, cash transfers reached 1.4 billion people. Similar cash transfer mechanisms were employed during pandemics in the 1500s, sharing common features, for example, in the assessing of household needs and determining eligibility criteria. China’s use of its social registry system in the first millennium to identify those who needed support resembles how some low- and middle-income countries today use social registries to manage welfare programmes. 

Why do we have cash transfers?

‘One of those long running debates…is that debate over whether cash transfers are responding to something structural or whether it’s something personal about poverty.’

The way poverty is framed, why it exists and how it perpetuates, significantly shapes an individual's perspective on whether and how cash transfers should be implemented. For instance, when poverty is viewed as the result of individual failings, then the scope for cash transfers is ‘more limited, narrow and stringent.’

Gentilini outlines three key implications of the interlinkages between poverty perceptions and cash transfers:

1. Shifting poverty narratives: Redesigning cash transfer programmes often necessitates reframing the narrative around poverty. 
2. Clarifying the role of cash: Policymakers must be explicit about what cash can and cannot fix and integrating cash into a wider policy framework.
3. Using a historical perspective to understand poverty 

‘So some see the provision of large scale cash as a foundational shift in power relations. Others see it as a band aid that leaves the fundamental poverty drivers unaffected.’

Are cash transfers causing the problem?

This question has been a topic of debate for centuries. It can be traced back to the early years in Rome when concerns were raised about whether providing money to individuals capable of working might discourage them from seeking employment, ultimately harming their long-term prospects. This argument remains central to contemporary discussions on the effectiveness and consequences of cash transfer programmes. 

‘And more recently…other leading intellectuals of the 1700s, 1800s, thought that cash would corrode the character of people in a way that made them indolent or improvident.’

These views have remained resilient throughout history and around the world. 

How have cash transfers been employed throughout history?

Cash transfers have played a crucial role in supporting economic transformation. During periods of industrialisation, as individuals migrated to cities and gave up their land, often their primary form of security, they required alternative means of stability to sustain their transition. In 18th and 19th century England, cash transfers were instrumental in maintaining a labour force near industrial hubs while cushioning workers through significant structural changes. Similarly, in early 19th century Antwerp, cash transfers were vital in supporting precarious workers and managing labour market disruptions caused by industrialisation.

Although the development of social insurance programmes might have suggested that cash transfers would become a residual tool, they have remained an essential component, shaping the design and structure of various social insurance programmes.

Cash transfers also align with broader policy goals of promoting economic inclusion. However, the approach often leaned toward punitive measures, such as confining the poor to workhouses, rather than integrating them into the labour market as active participants. This underscores a tension between providing support and fostering economic participation.

Cash transfers as a way of building state capacity

Cash transfers have played a crucial role in bolstering food security, complementing measures like in-kind distributions and food subsidies. Cash transfer systems have provided critical support during crises. For instance, India implemented a combined system of food and cash transfers designed for drought response, while China utilised a registration-based targeting system, coupled with weather data collection, to guide relief efforts for families.  Crises have frequently served as catalysts for the establishment of longer-term cash transfer programmes. In the United States, for example, cash transfers to veterans and widows began during the War of Independence and the Civil War. Over time, these measures gradually evolved into broader systems of protection, including provisions for the old.

Cash transfers have bolstered state capabilities in settings of protracted adversity, shaping institutional frameworks, particularly in LMICs where colonial legacies influenced their design.

Cash transfers have contributed to achieving stability, a topic explored by Gentilini through their moral and religious foundations. He examines their role in the development process and urbanisation when there is often an ‘influx of a large number of dispossessed and mobile populations.’ Additionally, he analyses how cash transfers influence social stability and unrest, considering whether they are used to perpetuate social discrimination or can help shift political narratives to foster inclusion and cohesion.

Three interconnected lessons about cash transfers

1. Historical evidence shines a light on the direction of causality: cash transfers are not the cause of poverty.
2. The societal cost of withholding assistance often exceeds the cost of provision.
3. Focus on more than just numbers; compelling narratives have a lasting impact, shaping perspectives and policy for centuries. 

‘So the message is that while we made huge progress on the evidence front, we may have been less convincing in presenting an equally alluring narrative that posits that hope and the basic level of economic security, as opposed to economic insecurity and fear, can spark upward mobility and make people thrive.’

Can history provide us with insights into the future of cash transfers? 

The COVID-19 pandemic marked one of the largest expansions of cash transfer programmes in history. However, as has often occurred following large social security expansions, scepticism and rhetoric about cash transfers fostering dependency have reemerged in policy discussions.

‘This is consistent with the historical record, large expansions were often followed by periods of tightening the belt.’

A recurring theme in history is the distinction made between earned and unearned income, with starkly different perceptions of each. Gentilini argues that as we face new challenges, such as climate change, we might need to reject the notion that cash transfers will become obsolete once certain individual issues are resolved. Instead, cash transfers should be recognised as a natural supplement to work earnings, integral to supporting livelihoods in a changing world.

The debates surrounding cash transfers are likely to persist unless we address the structural determinants of poverty and grapple with the fundamental question: is poverty truly solvable or is it an inherent feature of our current economic system?